In the News 

Federal Trade Commission – Non-compete Ruling

Published: Monday, April 29, 2024

 

On April 23, 2024, the Federal Trade Commission (“FTC”) issued its proposed final rule banning essentially all non-compete provisions in the employment context.  The FTC fact sheet with a high-level overview of the proposed final rule can be found here: https://www.ftc.gov/news-events/news/press-releases/2024/04/fact-sheet-ftcs-proposed-final-noncompete-rule. The new rule will go into effect 120 days after it is published in the Federal Register.

The new rule bans all new employment non-competes from the effective date of the rule forward and renders void all non-competes existing on the effective date except for those related to “senior executives”. For all those existing non-competes rendered void on the effective date, employers have a duty to inform their employees that any non-compete they signed is void. Some key definitions include:

  • “Senior Executives” means “workers earning more than $151,164 annually who are in a policy-making position.” (It is expected that “senior executives” will comprise less than one percent of all employees in the U.S.)
  • “Policy making position” means “a business entity’s president, chief executive officer or the equivalent, any other officer of a business entity who has policy-making authority, or any other natural person who has policy-making authority for the business entity similar to an officer with policy-making authority.”
  • “Policy making authority” means “final authority to make policy decisions that control significant aspects of a business entity or common enterprise and does not include authority limited to advising or exerting influence over such policy decisions or having final authority to make policy decisions for only a subsidiary of or affiliate of a common enterprise.”

With its significant anticipated benefits to the creation of new businesses and innovation, one might expect the U.S. Chamber of Commerce and other such chambers to support the rule. However, the day after the final rule was proposed the U.S. Chamber of Commerce filed a lawsuit challenging the new rule. Until such time as a court issues an injunction against the rule taking effect or overturns the rule, employers should be aware of this new rule and the possibility of operating without non competes in employment relationships.

If the new rule takes effect, it will undoubtedly cause some employers concern about how to protect their intellectual property. However, there remains a suite of methods at employers’ disposal for protecting their intellectual property without having to prevent employees from working in a particular industry. For example, confidentiality provisions in employment contracts and federal and state laws that protect against intellectual property infringement and misappropriation. It will be important for employers to re-visit their written employment agreements to revise them as necessary to remove non-compete provisions and bolster confidentiality, and other, provisions.

Thorelli & Associates is available to adjust client employment agreements to ensure compliance with the new rule.

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