On April 23, 2024, the Federal Trade Commission (FTC) issued a landmark ruling that has significant implications for non-compete agreements in business acquisitions¹. This ruling is a game-changer for businesses and workers alike, as it seeks to promote competition, increase worker mobility, and foster innovation¹.

The Ban on Non-Compete Agreements

The FTC’s final rule effectively bans non-compete agreements nationwide¹. Non-compete agreements are contractual conditions that prevent workers from taking a new job or starting a new business¹. These agreements have been criticized for keeping wages low, suppressing new ideas, and stifling the dynamism of the American economy¹.

The FTC estimates that the final rule banning non-competes will lead to the creation of over 8,500 new businesses each year¹. It is also expected to result in higher earnings for workers, with estimated earnings increasing for the average worker by an additional $524 per year¹. Furthermore, the final rule is expected to lower health care costs by up to $194 billion over the next decade¹.

The Impact on Business Acquisitions

While the FTC’s ruling broadly bans non-compete agreements, it does make an exception for certain situations, including business acquisitions². Specifically, the final rule allows existing non-competes for senior executives to remain in force¹. Senior executives, who represent less than 0.75% of workers, can continue to be bound by non-compete agreements entered into prior to the effective date of the rule¹.

This exception is significant for business acquisitions, as non-compete agreements are often used to prevent the sellers of a business from immediately starting a competing business after the sale. By allowing these agreements to remain in force for senior executives, the FTC’s rule provides some level of protection for businesses that acquire other companies.

Conclusion

The FTC’s April 2024 ruling represents a significant shift in the landscape of non-compete agreements. While the rule broadly bans these agreements, it does provide some leeway for their use in business acquisitions. As such, businesses and workers alike will need to navigate this new landscape carefully.

Please note that this article provides a general overview of the FTC’s ruling and its potential implications. For specific legal advice, it is always recommended to consult with a legal professional.

Sources:
¹: FTC Announces Rule Banning Noncompetes | Federal Trade Commission 
²: The Federal Trade Commission’s Non Compete Rule - CRS Reports
Written with the assistance of C-Pilot.

If you have any questions about this ruling or the process of buying or selling a business, please reach out to: