FTC Announces Ban on Noncompetes

In the world of banking, we have an alphabet soup of regulations and regulators. One regulator we don’t often hear about is the Federal Trade Commission (FTC). Well, take note because the FTC issued a final rule last month that will prevent most employers from enforcing noncompete agreements against workers, with only limited exceptions. If your bank enters into noncompetes, or if you’ve ever entered one yourself, it is something to pay attention to.

The final rule, which will become effective on September 4th, will make it unlawful for all “employers,” defined broadly to include any natural person, partnership, corporation, association, or other legal entity within the Commission’s jurisdiction, to:

  • Enter into, or attempt to enter into, a noncompete with a worker;
  • Maintain a pre-existing noncompete with a worker except for existing noncompetes with “senior executives;” or
  • Represent to a worker that the worker is subject to a noncompete.

The final rule defines a “senior executive” as a worker in a policy-making position who received compensation of at least $151,164 in the preceding year (either in total or on an annualized basis). A “policy-making position” means “a business entity’s president, chief executive officer, or equivalent, and any other officer of a business entity who has policy-making authority, or any other natural person who has policy-making authority for the business entity similar to an officer with policy-making authority.”

Existing noncompetes with all other workers become unenforceable upon the final rule’s effective date. Employers must notify workers, including anyone who previously worked for the business enterprise, that their noncompete agreements are no longer enforceable. The final rule provides model language for this notice.

As you may have noticed, the noncompete ban applies only to entities regulated by the FTC, and banks are excluded from FTC jurisdiction. In the rulemaking, the FTC acknowledges that “whether [the federal banking regulators] apply the rule to entities under their jurisdiction is a question for those agencies.” At this point, there is no indication that federal banking regulators will attempt to apply the FTC’s noncompete ban on banks. Banking regulators will likely take a hold-and-see approach while lawsuits challenging the rule are litigated.

The FTC expressly declined to exclude bank holding companies, subsidiaries, and other affiliates of excluded financial institutions from the rule if those entities otherwise fall within the FTC’s jurisdiction. Therefore, while banks are currently excluded, their parent companies and affiliates are subject to the noncompete ban and the enforcement of the FTC. This is an essential consideration for banking organizations with shared employees.