In the US, the Federal Trade Commission (FTC) issued a final rule on 23 April 2024, banning non-compete clauses for all workers (with very limited exceptions). The FTC's rationale was that non-compete clauses are anti-competitive, hindering employee mobility, suppressing wages and stifling innovation. Since published, the ban has been subject to various legal challenges and, on 20 August 2024, it was blocked by a Texas federal judge who found that the FTC exceeded its authority and that the ban was "arbitrary and capricious" and disproportionate to the issue the FTC sought to address. In particular, the judge criticised the FTC for failing to provide sufficient evidence to support its ban, consider less restrictive alternatives and acknowledge the potential benefits of non-compete clauses such as the protection of legitimate business interests (such as confidential information). The FTC has appealed against the decision – it looks likely that there will be further developments in this case in the course of 2025.
In the UK, non-compete clauses are enforceable providing they go no wider than reasonable and necessary to protect a legitimate business interest in terms of scope, duration, and geographic extent. 12 month non-compete clauses for senior employees are not unknown, particularly in sectors like insurance with annual renewal cycles, although they are often challenged. In May 2023, the Conservative government proposed a three-month cap on the duration of non-competes, although this proposal was not implemented. It's unclear whether the Labour Government will seek to progress this although, as the Employment Rights Bill shows, they are not reluctant to intervene in the labour market.
Given the evolving landscape, employers should closely monitor these developments. Alternative strategies for protecting their legitimate business interests should be considered such as the use of alternate restrictive covenants and notice periods with garden leave provisions.
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