Non-Competes Are Now Banned And Nearly All Existing Non-Competes Are Unenforceable
On April 23, 2024, the Federal Trade Commission (“FTC”) issued a final rule banning non-compete agreements nationwide. In the final rule, the Commission has determined 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-competes with workers and to enforce certain non-competes. For purposes of the final rule, a non-compete is any condition of employment that prevents individuals from seeking or accepting work in the United States with a different employer or operating a business after the conclusion of their employment with the former employer seeking to impose the non-compete condition.
Under this rule, nearly all existing and future non-compete clauses for paid staff, independent contractors and unpaid workers are considered unfair method of competition and are rendered unenforceable. One exception is that 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 executives” are specifically those who make more than $151,164 a year and are in a “policy-making position.”
The final rule continues to permit the use of non-competes entered into by a person pursuant to a bona fide sale of a business, of the person’s ownership interest in a business, or of all or substantially all of a business’ operating assets.
Employers Must Provide Notice To Workers Who Are Bound By Non-Competes That The Agreements Are No Longer Enforceable
Under the final rule, employers are 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 the workers. The notice to workers should be given by the effective date of the final rule.
The Final Rule Will Become Effective 120 Days After Publication In The Federal Register
The final rule will become effective 120 days after publication in the Federal Register, which has not yet occurred. However, there is an expectation that there will be legal challenges which may delay the publication in the Federal Register. In fact, at least one company, as well as the U.S. Chamber of Commerce, have already filed in Texas federal court challenging the FTC’s rulemaking authority on this issue. If any of these actions are successful, the final rule may be overturned and may never be implemented. Nevertheless, employers should be prepared to send required notices to workers who are bound by existing non-competes as mentioned above after the final rule is effective and provided such challenges are unsuccessful.
You Can Still Protect Your Business And Its Proprietary Interests
This final rule does not leave employers and businesses without mechanisms to protect their proprietary interests. Such mechanisms include coupling internal intellectual property related protections with commonly used agreements, like non-disclosure agreements. We are available to answer any of your questions and concerns regarding this change of law and are prepared to help guide your business in protecting its proprietary interests.
Please contact us with any questions or for assistance in implementing practical solutions to ensure compliance with applicable law.
Hochheiser & Akmal PLLC
910 Franklin Ave., Suite 220
Garden City, New York 11530
Phone: 516.262.3000
Fax: 516.636.8800
Website: www.h-alaw.com