I. Introduction:
On April 23, 2024, the Federal Trade Commission (FTC) issued a new rule that which will ban most employee non-compete agreements with retroactive effect, except existing non-compete agreements of senior executives (defined as workers earning more than $151,164 who are in a policy-making position as defined in the Final Rule). The Final Rule will also ban future non-compete agreements, including those for senior executives, with limited exemptions. Unless legally challenged in court, the rule will go into effect 120 days after the rule is published in the Federal Register.
Under the FTC’s rule, existing non-competes for the majority of employees will no longer be enforceable after the rule’s effective date. However, existing non-competes for senior executives can remain in force under the final rule, but employers are banned from entering into or attempting to enforce any new non-competes, including senior executives.
II. Overview of the Final Rule:
Employers are banned from entering into any non-compete with workers, which include independent contractors or employees.
Employers are banned from entering into or enforcing new non-competes with senior executives (defined as workers earning more than $151,164 who are in a policy-making position as defined in the final rule).
The only exception to the Final Rule is non-competes that are entered into in connection with the sale of a business.
The Final Rule preempts conflicting state laws.
III. What is Not Banned?
Existing non-competes for senior executives (defined as workers earning more than $151,164 who are in a policy-making position as defined in the final rule).
Non-competes between the buyer and seller in connection with the sale of a business, even if the seller is a worker.
Legal claims that accrued before the rule takes effect.
Attempts to enforce non-competes which are believed in good faith that the final rule is inapplicable.
IV. What Notice Must Be Provided to Workers?
Employers are required to provide notice to workers, other than senior executives bound by an existing non-compete, that it will not be enforced against them in the future by the effective date of the Final Rule
V. Alternatives to Non-Competes:
Employers have several alternatives to non-competes, such as trade secret laws, non-disclosure agreements (NDAs), and non-solicitation agreements, which provide protection for proprietary information. Companies should begin taking steps to protect against the heightened risks that may result from the ban of most non-compete agreements.
VI. Call to Action:
As employment defense lawyers, it’s essential for us at Hardin Thompson to stay informed about these regulatory changes and their implications for our clients. We’re committed to helping businesses navigate these new rules effectively, ensuring compliance while protecting their interests and fostering a fair and competitive labor market.