NOTE: In an August 21, 2924 ruling, a Texas federal judge has ruled against the FTC ban on non-compete agreements nationwide. The September effective date will not be valid. We’ll keep an eye on any developments and keep our clients updated. Read more about it:
A Game Changer for Employers
The Federal Trade Commission (FTC) recently made a significant change regarding employers’ use of non-compete agreements. The final rule issued by the FTC prohibits the use of non-compete agreements for many workers, which is a departure from the longstanding practices of many companies. This decision is already facing legal challenges, but businesses nationwide should consider the changes and prepare accordingly.
The FTC’s Crackdown: What Employers Need to Know
The new rule casts a wide net:
Non-Compete Agreements Banned
Beginning September 2024 (assuming the rule becomes effective timely with no court interference), you cannot enforce existing non-compete agreements with most employees, and you cannot enter into new ones.
Exceptions
The ban applies to almost all workers, but there’s an exception for “senior executives” earning over $151,164 annually and in policy-making positions. Employers can still enforce existing non-compete agreements with these senior executives, but creating new ones is forbidden, even for this group.
Notice Requirement
You must notify current and former employees (unless they are senior executives) that their non-compete agreements are void. This can be done via email, text, or paper. The FTC provides sample language you can use for these notices.
Compliance Steps for Employers
While the legality of the FTC’s rule hangs in the balance, employers should take proactive measures to comply with the current guidelines. Here’s a roadmap to navigate this new territory:
- Develop a Strategic Plan: Partner with legal counsel to craft a customized plan considering your company’s size, the number of existing non-compete agreements, and your risk tolerance.
- Take Inventory: Conduct a comprehensive review of all existing restrictive covenant agreements, including those with former employees. Identify workers who fall under the senior executive classification and allow enforcement of their non-competes if applicable. Track all new agreements moving forward.
- Explore Alternatives: Consider alternative methods to protect your interests. Well-defined customer non-solicitation agreements or confidentiality provisions could be viable options. However, remember that the FTC’s rule doesn’t explicitly address these agreements. Consult an attorney to ensure they comply with current regulations.
- Fortify Trade Secret Protections: The FTC emphasizes the importance of robust trade secret protection to mitigate the impact of the non-compete ban. Identify your trade secrets and implement strong policies and procedures to safeguard them. This includes limiting access to confidential information, training employees on proper trade secret handling, and using technological controls to prevent unauthorized access.
The Road Ahead
The FTC’s rule on non-compete agreements is a significant development with potential long-term consequences for employers. While the legal battles unfold, employers must adapt and ensure compliance with the current guidelines. We’ll keep you informed of the latest developments with this rule and whether the courts are successful in delaying or changing it.
