FTC Ban on Non-Compete Agreements

FTC Ban on Non-Compete Agreements

Ban on Non-Compete Agreements.

On April 23, 2024, the Federal Trade Commission (FTC) issued a final rule banning non-compete agreements.  Barring any legal challenges, the final rule is scheduled to go into effect on September 4, 2024.

What is a Non-Compete Agreement?

A non-compete agreement is a legally binding agreement between an employer and an employee where the employee is forbidden from competing against their employer for a period of time after leaving their employment for any reason.  This could mean preventing the employee from working for the employer’s nearby competitors, preventing the employee from starting their own competing business, or preventing that employee from even working in that field for a period of time after termination.

Many employers utilize these agreements to prevent employees from taking what they learned on the job and starting up competing businesses or working for competitors.  

Who does this Ban apply to?

When the ban becomes effective, it will affect every employee in the country.  From the bottom level employees to senior executives, no American employer will be able to enter into a non-compete agreement with their employee.  

This ban will void most previously agreed to non-compete agreements, except those between an employer and “senior executives”.

This ban does NOT apply to other similar agreements, such as non-disclosure agreements or non-solicitation agreements, except that if those agreements are too broad, in limited circumstances they may be construed as an unenforceable non-compete.

The ban does not apply to non-competes entered into by a person pursuant to a bona fide sale of a business entity. 

How will employers comply with the Law?

Employers will need to review their existing non-compete agreements, non-disclosure agreements and non-solicitation agreements, and determine whether any of the existing agreements are too broad.  

Employers will also need to determine if any existing non-compete agreements involve “senior executives” and remain enforceable.  

Additionally, once the rule comes into effect, employers will have to provide notice to non-executive employees who had entered into a non-compete clause that the non-compete is unenforceable.  

Employers must continue to comply with the laws of other states that may be more restrictive than the FTC ban.  

Pending legal challenges?

Challenges to the FTC’s new rule have already been filed in U.S. District court for the Northern District of Texas, by Ryan, LLC, and in the U.S. District Court for the Eastern District of Texas, by the U.S. Chamber of Commerce.  Both of these challenges, and others that may be filed, have potential to halt enforcement of this final rule.  

Legal Help

LJE Law Firm can help businesses with questions regarding how to comply with the new rule, and whether it is enforceable and in what circumstances.  LJE Law Firm can also review your existing agreements and determine whether modifications are needed.

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