Impact of the FTC’s Ban on Noncompetes Between Employees and Employers

A noncompete agreement is a contractual obligation between an employer and an employee that typically prohibits the employee from working for a competing business or starting a competing business for a specified period after the employment relationship ends. These agreements often include geographic restrictions as well. The intent is to protect the employer’s business interests, such as trade secrets or client relationships. However, noncompetes also significantly limit the employee’s freedom to seek new employment.

In April 2024, the Federal Trade Commission (FTC) announced a rule that effectively bans most noncompete agreements nationwide. This measure has significant implications for both employees and employers in New Jersey, where noncompetes have been traditionally allowed under prescribed conditions.

Under the new rule, it would be an unfair method of competition for employers to enter into or attempt to enforce new noncompetes with workers. For existing noncompetes, the rule adopts a different approach for senior executives than for other workers. For senior executives, noncompetes can remain in force. Existing noncompetes with workers other than senior executives are not enforceable after the effective date of the rule, which is September 4, 2024. Moreover, employers are prohibited from entering into or attempting to enforce any new noncompetes, even if they involve senior executives.

Under current New Jersey law, noncompete agreements are enforceable if they meet certain requirements. They must be reasonable in duration, geographic scope and the type of business activity they restrict. An agreement cannot be broader than needed to protect a legitimate business interest, such as trade secrets or confidential information. Additionally, the noncompete cannot impose undue hardship on the employee.

The FTC’s rule will override New Jersey’s current noncompete laws, making most existing agreements unenforceable. In fact, the FTC has provided a model notice that employers can use to inform employees that their noncompetes are no longer enforceable. However, the rule is being challenged in lawsuits claiming the FTC has overstepped its authority, and it will not be final unless and until the litigation is resolved. 

If you are an employee or employer in New Jersey, the implications of the FTC’s new rule are significant. For employees, it may mean that your existing noncompete is no longer valid, opening up new career opportunities. For employers, it necessitates reviewing existing agreements and considering alternative strategies to protect business interests.

If you signed a non-compete agreement with a New Jersey employer, the experienced attorneys of Deutsch Atkins & Kleinfeldt, P.C. in Hackensack can offer guidance and advice regarding your rights and liabilities. To schedule a consultation, call 551-245-8894 or contact us online.