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FTC’s Non-Compete Rule May Have Serious Government Contracts Implications

by Lucas T. Hanback and Ruby Zapien

The Federal Trade Commission (FTC) recently finalized a controversial rule banning most non-compete clauses in employment agreements for covered employers nationwide. Set to take effect on September 4, 2024, the so-called non-compete ban may have serious implications for government contractors and bears close monitoring.  

The new rule prohibits covered employers from doing the following:  

  • Entering into or attempting to enter into a non-compete agreement;
  • Attempting to enforce a non-compete agreement; and
  • Representing that a worker is subject to a non-compete agreement.  

The rule further requires employers to notify current and former employers that any existing non-compete agreements are now invalid and unenforceable. It will also suspend any state laws that offer less protection than the new federal rule. The ban on non-competes is broad, though it makes exceptions for very senior executives and in the context of the sale of a business. 

Implications for Government Contracts?

Should the rule take effect as written, it could have serious implications for government contractors. Specifically, contractors may face issues with responses to solicitations requesting names and resumes of key personnel or required letters of commitment. Although the proposed non-compete ban does not state whether letters of commitment fall under the definition of a non-compete clause, if the agreement functions as a way of preventing a worker from seeking or accepting other work, it could fall under the FTC’s new broad definition of a non-compete.

The rule may also leave contractors exposed to allegations of misrepresentations or loss of award if, without enforceable letters of commitment, key personnel are free to resign from their roles post-proposal and pre-award and contractors do not properly notify the relevant agency of the changes.    

What Happens Next?

The U.S. Chamber of Commerce and other business groups have already filed a legal challenge against the FTC in Texas federal court over the new non-compete rule. As a result, it may or may not take effect on September 4, 2024. Given the ban’s broad implications, government contractors should closely monitor that suit’s progress and any other changes. 

If you want to know more about the implications of the FTC non-compete ban for government contractors and how to mitigate any potential liability, reach out to the RJO attorney you work with or the authors of this alert: Lucas Hanback and Ruby Zapien

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