On Tuesday, April 23, 2024, the Federal Trade Commission (“FTC”) voted (3-2) to ban essentially all non-compete agreements applicable to workers (employees and independent contractors alike). The new rule – assuming it takes effect, which is still unknown – specifically precludes “business entities” from entering into non-competes, enforcing existing non-competes (for all but a narrow group of “senior executives” making at least $151,164 per year), or representing to workers that they are subject to non-competes. It also requires businesses to notify current and former workers who signed non-competes that they are no longer enforceable.
I use non-competes for my workers, do I have to act now?
The new rule is not effective yet, so businesses need not take immediate action. Multiple business groups have already challenged the rule in at least two federal courts, and even if it survives those challenges, it will not take effect until 120 days from when it is published in the Code of Federal Regulations. At the soonest, we expect it will not become effective until late September 2024. That said, businesses should be proactive in identifying employees and other “workers” that are subject to non-competes so that they can be ready to give notice to them if and when the rule goes into effect.
Once the rule becomes effective, what must I do?
Businesses will need to give notice to all “workers” who entered into non-competes before the effective date that their non-competes cannot and will not be enforced. The rule provides model language and a sample form that it recommends be used.
Next, because businesses will be precluded from including non-compete language in their agreements with workers, they will have to redraft and edit employment contracts, independent contractor agreements, and restrictive covenant agreements so that any non-compete language is removed.
The rule also explicitly states that it does not preempt or override applicable state laws and regulations concerning non-competes. In other words, if a state law imposes additional requirements, an employer must take necessary action to comply with both state and federal law. We recommend that businesses check their non-compete agreements and other restrictive covenants against applicable state laws to ensure compliance, especially if the agreements are more than four years old.
If you have any questions or would like your existing non-compete agreements to be reviewed or updated, Whelan Corrente & Flanders LLP is ready to help. Please reach out to your existing contact at the firm or e-mail our Office Manager, Cindy Lomas (clomas@whelancorrente.com) to discuss next steps.