On April 23, 2024, the Federal Trade Commission (FTC) issued a Final Rule that bans most existing non-compete agreements once the Rule becomes effective, which currently is estimated to be September 10, 2024.
Points employers should know and consider now:
- Under the Rule, most non-competes will be rendered unenforceable.
- The Rule contains an exception for existing non-competes with senior executives (defined below) entered before the Rule’s effective date.
- Employers may not enter into or attempt to enforce any new non-competes, even against senior executives, after the Rule’ effective date.
- After the effective date, Employers must notify workers, other than senior executives, that they will not enforce those covenants.
- Employers may still require and enforce properly drafted non-disclosure and non-solicition agreements.
To qualify as a senior executive under the Rule, an employee must earn at least $151,134 per year and work in a policy-making position.
The Rule distinguishes a non-compete provision from non-disclosure and non-solicitation provisions. Under the Rule, non-disclosure and non-solicitation provisions are enforceable so long as they are not so broad that they “function to prevent” a former employee from working for a competitor.
The FTC approved the Rule by a 3-2 party-line vote. The Rule is set to go into effect 120 days after its publication in the Federal Register, although legal challenges are expected. One such suit has already been filed in a Texas federal court.
To prepare for the Rule (or some lesser version of it), employers should take stock of their existing non-compete agreements, determine which agreements are with senior executives, and review non-disclosure and non-solicitation agreements to ensure that they are sufficiently narrow.
