On April 23rd, the Federal Trade Commission (FTC) issued a new rule banning non-compete agreements (NCAs), a practice used by employers in which an employee agrees not to work for a competitor during a certain time period. Employers historically have applied NCAs to highly-skilled workers and executives with access to proprietary information. The rule is the result of an Executive Order by the Biden Administration championing increased competition and a Government Accountability Office (GAO) report which found that NCAs reduce job mobility. The rule will likely not apply to most large non-profit corporations but will have an impact in the for-profit sector. Below are key takeaway about implementation and what to expect.

Key Dates

The rule will take effect 120 days after being published in the Federal Register. Publication is not expected until May, meaning that the effective date would not be until early fall of 2024.

Not All Non-Profits Will be Subject to the Rule

The rule may not apply to non-profit corporations like AHPA’s health systems. The question of FTC jurisdiction over non-profits under Section 5 of the Federal Trade Commission Act (“FTCA”), which is the statutory provision on which the agency relied, is not crystal clear. Some argue that the FTC has no jurisdiction over non-profits and others assert the opposite. In the rule, the FTC concedes that it has no jurisdiction over many non-profit corporations but states that it will apply a test to determine jurisdiction under certain circumstances. Information on this “test” is on page 52 of the rule.

Pending Litigation May Invalidate the Rule

The rule is going to be subject to various legal challenges that could invalidate it or result in at least a preliminary injunction before it takes effect. The US Chamber of Commerce and other business groups almost immediately filed lawsuits challenging the rule, arguing that the FTC has no power to enact a regulation under Section 5 of the FTCA.