The Federal Trade Commission (FTC) recently made headlines with its ban on non-compete agreements, which was issued on April 24, 2024. This decision marks a significant change and it is essential to understand the particulars. In this blog post, we will explore the key requirements outlined by the FTC and what they mean for employers and employees alike.
- What is the scope of the ban?
- The FTC’s ban applies to non-compete agreements that are “unfair methods of competition” under Section 5 of the FTC Act. This includes agreements that restrict employees from working for competitors after leaving their current employer.
- The prohibition extends to both existing and future non-compete agreements, regardless of when they were entered into, with certain exceptions.
- What are the exceptions?
- The ban does not apply to agreements related to the sale of a business or the protection of trade secrets.
- Agreements that restrict an employee’s ability to solicit customers or clients of their former employer are still permissible under certain circumstances.
- The ban does not apply to “senior executives,” which is defined as workers earning more than $151,164 who are in a “policy-making position.” “Policy-making position is defined as “a business entity’s president, chief executive officer, or the equivalent, any other officer of a business entity who has policy-making authority, or any other natural person who has policy-making authority for the business entity similar to an officer with policy-making authority.
- How will the ban be enforced?
- Employers found to be enforcing or threatening to enforce unlawful non-compete agreements may face enforcement actions by the FTC. Suspected violations can be reported to the Bureau of Competition.
- Employees who believe their rights have been violated can file complaints with the FTC or seek legal recourse through the courts.
- Are there any other factors that the FTC will consider when evaluating the legality of a non-compete?
- The FTC will consider public interest factors, such as the impact on competition and workers’ ability to find new employment, when evaluating the legality of non-compete agreements.
- Employers must demonstrate that their non-compete agreements serve legitimate business interests and do not unduly restrict employees’ rights.
- Do employers have to notify employees that their non-compete is unenforceable?
- Yes. The rule requires employers to notify workers whose non-competes are no longer enforceable that their non-competes are no longer in effect and will not be enforced. The FTC provides model language that employers can use to notify employees.
Understanding these specific requirements is essential for both employers and employees to navigate the post-ban landscape effectively. Employers must review their existing non-compete agreements to ensure compliance with the FTC’s guidelines and make any necessary adjustments. Employees, on the other hand, should familiarize themselves with their rights under the ban and be prepared to assert them if needed. The final rule is scheduled to be published in the Federal Register on May 7, 2024 and will become effective 120 days thereafter.
Disclaimer: The information contained in this post is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls and communications. Contacting us, however, does not create an attorney-client relationship.
