FTC Issues Final Rule on Non-Compete Clauses
Earlier this year, the Federal Trade Commission (FTC) issued a Final Rule on Non-Compete Clauses (the “Final Rule”) which bans employment non-compete clauses between employers and their workers (including independent contractors). The Final Rule will go into effect on September 4, 2024.
Below you will find some frequently asked questions that will help you understand the details and implications of this new rule.
What does the Final Rule Prohibit?
An employer may not enter into or attempt to enter into a non-competition agreement with a worker.
What must employers do now that the Final Rule is going into effect?
Employers may not enter into non-competition agreements with workers.
Those workers currently subject to a non-compete agreement must receive personal written notice that their non-compete obligations will not – and cannot – be legally enforced against them. Written notice must be sent by the Final Rule’s effective date of September 4, 2024.
A draft notice is below for your convenience.
Are there exceptions?
1. There is an exception for existing non-competition agreements with “senior executives” making at least $151,164.00 in annual compensation who exercise significant control over the business.
2. The Final Rule does not apply to non-competes entered into in connection with the bona fide sale of a business.
3. The Final Rule does not forbid the use of non-solicitation provisions and Non-Disclosure Agreements as long as they are not written so broadly that they hinder the worker’s ability to practice their profession and make a living.
Will the Final Rule be enforced?
Many legal experts believe the Final Rule will be struck down for exceeding the FTC’s authority.
Several lawsuits have already been filed by business and trade associations across the country. At least one injunction – preventing the enforcement of the rule against the plaintiffs in that particular case – has been put in place by a court in the Northern District of Texas.
As of now, however, the Final Rule is still set to go into effect on September 4, 2024, so it is time to take action if your business currently uses non-competes.
What should employers do now?
Review your existing agreements to determine whether they contain non-compete clauses.
Prepare the required notices to send to affected employees. The notices must be sent in writing via paper notice, email, or text message before September 4, 2024. However, consider waiting to send notices until the end of August to allow additional time for the Final Rule to be delayed or enjoined.
Draft Notice
A new rule enforced by the Federal Trade Commission makes it unlawful for us to enforce a non-compete clause. As of September 4, 2024, we will not enforce any non-compete clause against you. This means that as of September 4, 2024:
- You may seek or accept a job with any company or any person – even if they compete with [EMPLOYER].
- You may run your own business – even if it competes with [EMPLOYER].
- You may compete with [EMPLOYER] following your employment with [EMPLOYER].
The FTC’s new rule does not affect any other terms or conditions of your employment.
Where can I get more information?
As always, please feel free to reach out to me with any questions. Additional information is available on the FTC’s website here: FTC Non-Compete Rule.
