The Federal Trade Commission (“FTC”), on April 23, 2024, issued a Final Rule which prohibits employers from entering into and enforcing non-compete agreements with almost all workers.  The Final Rule will be effective on September 4, 2024, although there are legal challenges pending which may delay or even invalidate the Final Rule entirely.  The Federal Trade Commission has authority over for-profit companies but excludes non-profit entities and federally regulated banks and credit unions.

Summary
The Final Rule does three things:
– Employers can no longer enter into non-compete agreements with any worker;
– Employers can  no longer enforce existing non-compete agreements, except with senior executives; and
– Employers must provide explicit notice to both current and former employees that their non-compete agreements are no longer enforceable.

The Final Rule defines non-competition agreements as any term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from seeking or accepting employment with another business or operating a business.  A senior executive is defined as a worker earning more than $151,164 annually and is in a policy-making position.  The FTC estimates that fewer than 1% of workers are senior executives as defined above. 

A worker is defined in the Final Rule as an employee, independent contractor, extern, intern, volunteer, apprentice, or sole proprietor who provides services.

Employers are not required to rescind existing non-compete agreements.  Other provisions, such as confidentiality and non-solicitation, can remain in effect.

Notice Requirement
Before September 4, 2024 (the effective date), employers must provide notice to workers that their non-compete clause is no longer in effect and may not be enforced against them, excluding senior executives.

The Final Rule provides guidelines for the notice:

  • Employers must provide “clear and conspicuous” notice to workers;
  • Employers must provide the notice in digital format or on paper.  Verbal notice is not acceptable;
  • Workers for whom you have no record of a street address, email address, or mobile telephone number are exempt from the notice requirement.

The Final Rule includes model notice language and creates a safe harbor for employers that use it.

Next Steps
Given the pending legal challenges, it is likely that the effective date will be delayed.  However, you may want to begin preparing notices or at least gather the necessary information to produce the required notice.

It is also important to review your existing agreements, specifically any non-solicitation and confidentiality clauses or agreements to ensure that they are compliant with existing laws.  Equally important is to ensure that you have appropriate policies and procedures in place to protect your trade secrets. 

As always, if you have any questions on this topic, please contact your Stall Legal attorney.