The Federal Trade Commission (FTC) released the final version of its administrative rule prohibiting all current and future non-compete agreements for all employees on April 23, 2024. Once published in the National Register, the rule will become effective after 120 days. However, a lot can happen between now and then and legal challenges have already been filed in the courts. This means that no action needs to be taken right now, but employers should understand what the rule says and be prepared to implement changes, if necessary.
The final rule bans “non-compete clauses,” which is any provision that “prohibits a worker from, penalizes a worker for, or functions to prevent a worker from . . . seeking or accepting [a job] . . . or operating a business in the United States after the conclusion of the employment.” This broad definition, especially the “functions to prevent” portion, could cover additional provisions such as non-disclosure agreements, benefit repayment agreements, and non-solicitation agreements if, for example, those provisions prevent someone from quitting. A fact-intensive case-by-case analysis would be required to determine whether a given provision is covered under this rule.
All workers, current and prior, are covered and there are very limited exceptions: 1) non-compete agreements tied to the sale of a business; and 2) current non-compete agreements with workers in “policy-making positions.” These “policymaking” workers include officers like the “president, vice president, secretary, treasurer or principal financial officer, comptroller or principal accounting officer,” and those who have “final authority to make policy decisions that control significant aspects of a business.” New agreements with “policymaking” workers will be prohibited.
Under the new rule, employers would be required to provide “notice” via hand delivery, mail, e-mail, or text message to allow workers currently under a non-compete agreement that the agreement is unenforceable.
If you have any questions on this or any other employment matter, please reach out to Michael A. Airdo at mairdo@airdowerwas.com or James C. Jansen at jjansen@airdowerwas.com.