[Legal Alert] Non-Competes are gone!

This FTC ban could change everything.

May 02, 2024 • Estimated Reading Time: 4 minutes

Last week, the Federal Trade Commission voted to ban practically non-compete clauses and agreements. I just released a video on the subject today, but I wanted to make sure you were aware.

Here’s what you need to know:

  • EFFECTIVE DATE: The FTC has indeed voted to ban all new noncompetes and most of the former noncompetes that exist. However, the rule officially goes into effect 120 days after it has been published in the Federal Register. This publishing has not yet occurred. Additionally, the rule is facing legal challenges  and FTC is being sued regarding this rule. This means that there is a high chance that the effective date will be delayed and that the rule as it currently stands will change.

  • NEW NONCOMPETES: The rule as it currently stands bans ALL NEW noncompetes with employees and independent contractors. There are no real exceptions going forward that would impact your industry and business.

  • OLD NONCOMPETES & SENIOR EXECUTIVES: The rule bans most old noncompetes for employees and independent contractors. The only exception is that the ban will allow noncompetes for senior executives to stand. A senior executive is defined as a worker who is in a “policy-making position” and makes at least $151,164 per year through salary and benefits.

  • NOTICE: When the rule goes into effect, employers must let all workers with noncompetes know that they are no longer enforceable.

  • SALE OF A BUSINESS: This rule does not apply when a noncompete is entered into in connection with the sale of a business.

  • NONDISCLOSURE AND NON-SOLICITATION: This rule does not apply to non-disclosure agreements (also known as confidentiality agreements)  and non-solicitation agreements as long as they are not so broad that they are basically the same as a noncompete.

  • CURRENT EMPLOYEES: As of this time, I have not read anything that says this allows current employees to engage in activity that competes with their current employers. This rule seems to apply primarily to noncompetes that deal with post-employment scenarios. However, additional clarification in light of the lawsuit may provide greater clarity.

What You Are Required to Do:

  • At this time, you are under no obligation to do anything. The rule has not been finalized and the legal challenges are likely to delay and change your obligations.

What You Should Do:

  • Review your current employment agreements to make sure that the appropriate parties have nondisclosure and non-solicitation clauses. If you are an employee, review your employment agreement to see if you are one of the workers who may be released from noncompete obligations.

  • For business owners, consider whether anyone on your team should be treated like a senior executive and take action to have them qualify as such and ask them to sign a noncompete before this rule goes into effect.

We will keep you posted as more information becomes available.

Best,

P.S.  If you would like my team to review your contracts and provide specific feedback and revisions regarding how you can improve your legal protection, we are here to help. Schedule your consultation with us today.