On April 23, 2024, the Federal Trade Commission (“FTC”) issued a final rule approving its proposal to ban non-compete agreements for all workers including independent contractors, externs, interns, volunteers, apprentices, and sole proprietors who provide a service to a person.
Specifically, the rule states that “…it is an unfair method of competition – and therefore a violation of Section 5 of the FTC Act – for employers to enter into non-compete agreements with workers after the effective date.” Under the final rule, employers will be required to provide notice to workers (other than senior executives who are bound by an existing non-compete) that they will not be enforcing any non-competes against them. Notices must be delivered in writing via letter, email, or text message, no later than the rule’s effective date. The FTC rule includes a model notice that can be used for this purpose which can be found here: https://www.ftc.gov/legal-library/browse/rules/noncompete-rule
Existing non-competes for senior executives can remain in force under the FTC’s final rule, but employers are banned from entering into or attempting to enforce any new non-competes, even if they involve senior executives. “Senior executive” is defined as persons who are in policy-making positions (such as president, CEO, or similar officer) and have total annual compensation of at least $151,164.00 per year.
The ban on non-compete agreements does not apply to a non-compete that is entered into by a person pursuant to the bona fide sale of a business entity or such person’s ownership interest in a business entity. Further, non-disclosure, confidentiality and non-solicitation agreements are still permissible.
The rule will take effect within 120 days of its publication in the Federal Register (on or about August 21, 2024). Once the rule is effective, market participants can report information on a suspected violation of the rule to the Bureau of Competition by emailing [email protected].
The U.S. Chamber of Commerce has already announced plans to challenge the new rule. Although litigation to block the rule can be expected, employers may want to prepare as though the rule will become effective in 120 days by rewriting agreements to remove non-compete clauses. In addition, employers should prepare the notice to provide to those workers with existing non-compete agreements.
If you have any questions regarding the FTC’s new rule and how it effects your existing and future agreements, please contact Ali Law Group.
HRtelligence was created by the team at Ali Law Group, LLC. Should you have any questions or need assistance, please contact Ali Law Group.
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