FTC ISSUES FINAL RULE BANNING NONCOMPETE AGREEMENTS
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."
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.
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