April 26, 2024

On Tuesday, April 23, 2024, the Federal Trade Commission (“FTC”) issued a rule banning nearly all non-compete agreements. The ban will take effect 120 days after publication in the Federal Register. It is expected that this will occur in August of this year.

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The rule applies broadly to all types of workers, including employees, contractors, interns, and volunteers, regardless of their pay level. This is a significant expansion from traditional employment contexts, aiming to cover all forms of worker relationships.

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Existing non-compete agreements, aside from those in effect for senior executives, will no longer be enforceable after the rule’s effective date. Those in effect for senior executives will remain in force. This acknowledges the unique considerations and potential business impacts involving high-level positions, but its effect is limited, as no new non-compete agreements for senior executives will be enforceable under the rule, which defines a senior executive as a worker who 1) was in a policy-making position, and 2) received total annual compensation of at least $151,164 in the preceding year.

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Per the FTC, “employers will be required to provide notice to workers other than senior executives who are bound by an existing noncompete that they will not be enforcing any non-competes against them.” This notification must be clear and conspicuous, ensuring that workers are aware of their new rights and freedoms under the rule.

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Implementation of the rule may be delayed as a result of pending legal challenges. However, employers should take steps now to address the coming changes in the event the legal challenges fail. Black McCuskey recommends that employers take the following action:

1. Determine if the rule applies to your organization. The Federal Trade Commission Act does not apply to all organizations, such as non-profits.

2. Consider having senior executives, as defined by the rule, sign a non-compete agreement prior to the effective date of the rule.

3. Take inventory of your organization’s current non-compete agreements so that the required notices can be sent.

4. Consider having employees execute other restrictive covenant agreements, such as confidentiality and non-solicitation agreements.

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As the proposed rule is hundreds of pages, this is a short summary rather than a comprehensive analysis. If you have any questions about the final rule and its impact on your organization, please contact Brian Mertes, Gust Callas, or any other member of Black McCuskey’s Labor and Employment Practice Group.

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