Click Here for PDF Version  On May 7, 2024, the new FTC Rule banning most non-competition clauses or agreements is scheduled to be published in the Federal Register. With this publication, the new FTC Rule is set to take effect on September 4, 2024. The FTC summarized the Rule with the following key points: • The Rule introduces a comprehensive ban on new noncompetes with all workers, including senior executives; • Noncompetes found to be an unfair method of competition; • Existing noncompetes with workers other than senior executives are not enforceable after the effective date (currently September 4, 2024); • Different approach for some - existing noncompetes for senior executives can remain in force IF "senior executive" earns more than $151,164 and in "policy-making position." Noncompete Rule The Final Rule is very broad and, pending litigation challenging the Rule, will impact most noncompete clauses and agreements between entities subject to FTC jurisdiction and employees, independent contractors, externs, interns, vohu1teers, apprentices, and certain sole proprietors. Note that the Final Rule does not apply to most not-for-profit entities, and certain financial institutions, because those entities are outside the FTC's jurisdiction. Further, it does not apply to a "worker" for a franchisee in the context of a franchisee-franchisor relationship. However, the Final Rule permits employers to enforce noncompete covenants that are entered pursuant to the bona fide sale of a business entity, of the person's ownership in a business entity, or of all or substantially all of the entity's operating assets. The Final Rule defines a "non-compete clause" broadly to include a term or condition of employment that either "prohibits a worker from, penalizes a worker for, or functions to prevent a worker from" seeking or accepting work with a competitor, or operating a competing business. The Final Rule, therefore, captures agreements that "penalize" a worker who takes (or seeks to take) a job with a competitor. Further included in the definition are covenants in a severance agreement between an employer and employee that conditions payment on non-competition. Finally, the Final Rule imposes a substantial procedural burden on employers to provide written notice to all workers who do not fall within the "senior executive" or sale-of-business exceptions that existing covenants not to compete will be invalid as of the effective date of the Final Rule. Specifically, the Final Rule requires employers, by the effective date, to provide "clear and conspicuous notice" in writing to such workers that their non-compete clauses will not be, and cannot legally be, enforced against them. The FTC included an approved form of notice with the Final Rule. WHAT DOES THIS MEAN FOR YOU? 1. Lawsuits have already been filed challenging the legality and enforceability of the Final Rule. As a result, there is still a possibility the effective date of the Final Rule could be delayed and pushed later into the future. 2. Notices - we do NOT recommend providing the required written notice to employees at least until August to see what impact pending litigation has on the enforcement of the Final Rule. 3. In the meantime, identify all individuals that you have noncompete agreements with to be ready. Employment Law Alert is a service to our clients, friends, and colleagues. This is not intended to be legal advice, but rather, to provide accurate information regarding employment law matters. For more information regarding employment law matters, please contact David G. Penn (dpenn@srnm.com). Our telephone number is (217) 223-3030. Please visit our website: www.srnm.com. We invite and welcome all questions and comments. © 2024 Schmiedeskamp Robertson Neu & Mitchell LLP