Update on FTC Final Rule Banning Non-Competes
05/13/2024The Final Rule banning non-competes was published on May 7, 2024, meaning it becomes effective on September 4, 2024, barring certain legal challenges. Lawsuits have been filed in Texas and Pennsylvania; however, to date, no court has issued a stay of the final rule.
What this means for employers.
By September 4, 2024, employers must provide “clear and conspicuous notice” to current and former employees, except those employees who qualify as “senior executives” (defined as workers who are making at least $151,164 and are in a policy making position), and independent contractors that their non-compete clause will not be enforced against them. The Final Rule provides model language and requirements regarding how the notices are to be distributed and provides a safe harbor provision for employers who utilize the model language.
What this means for employers.
By September 4, 2024, employers must provide “clear and conspicuous notice” to current and former employees, except those employees who qualify as “senior executives” (defined as workers who are making at least $151,164 and are in a policy making position), and independent contractors that their non-compete clause will not be enforced against them. The Final Rule provides model language and requirements regarding how the notices are to be distributed and provides a safe harbor provision for employers who utilize the model language.
Exceptions:
- Non-compete clauses related to a bona fide sale of business are generally not subject to the Final Rule’s requirements.
- The ban does not extend to restraints on concurrent employment and is limited to post-termination non-competes.
- The Final Rule does not apply to pending litigation where a cause of action related to a non-compete clause accrued prior to the effective date of September 4, 2024.
- While it will likely be a high bar to meet, the Final Rule It states that if the employer has a good-faith basis to believe the Final Rule is inapplicable, it is not an unfair method of competition for an employer to enforce, attempt to enforce, or make representations about a non-compete clause.
Other restrictive covenants:
Generally, the Final Rule does not ban other types of restrictive covenant agreements, such as non-disclosure and non-solicitation agreements. However, the Final Rule provides that non-solicitation agreements can fall under the definition of a “non-compete clause” if the non-solicitation agreement “functions to prevent a worker from seeking or accepting other work or starting a business after their employment ends.”
Impact of state laws:
The non-compete ban will supersede any state statute, regulation, order or law that is inconsistent with the Final Rule. However, states are permitted to impose laws or regulations affording greater protections to workers.
Impact of state laws:
The non-compete ban will supersede any state statute, regulation, order or law that is inconsistent with the Final Rule. However, states are permitted to impose laws or regulations affording greater protections to workers.