UPDATE 8/21/2024
On August 20, 2024, Judge Ada Brown of the Northern District of Texas granted summary judgment in favor of the pro-business plaintiffs, abolishing the FTC’s Non-Compete Rule, 16 C.F.R. § 910.1-.6, ruling that the new noncompete rule “shall not be enforced or otherwise take effect on September 4, 2024, or thereafter.”
While this ruling stops the FTC from enforcing the new rule pending appeal, companies are still advised to generate a list of workers with whom they have non-compete agreements and prepare to take the steps below in the event this newest ruling is overturned on appeal
The new rules
Under new FTC regulations, as of September 4, 2024, employers are: 1) not allowed to enter into noncompete agreements with workers; 2) not allowed to enforce existing noncompete agreements against current and former workers; and 3) required to give notice of non enforcement to all current and former workers covered by noncompete agreements.
No new noncompete agreements
As of September 4, 2024, the FTC prohibits employers from including noncompete language in their employment contracts, employee handbooks, workplace policies, on their websites, etc. This applies to all workers, whether paid or unpaid, without regard to the worker’s title or the worker’s status under any other State or Federal laws, including, but not limited to, whether the worker is an employee, independent contractor, extern, intern, volunteer, apprentice, or a sole proprietor who provides a service to a person. This new regulation not only prevents employers from forcing workers to sign noncompete agreements, it also prohibits employers from including noncompete language in other agreements or documents. If you are an employer and have not already vetted all of your corporate documents and online presence to remove all aspects of noncompete language you only have a few more weeks to get that accomplished.
No enforcement of existing noncompete agreements
Under the new regulations, the FTC prohibits employers from enforcing, or threatening to enforce, prior noncompete agreements for violations occurring after September 4, 2024. Tw exceptions to the new regulations are that employers will still be able to enforce noncompete agreements against “senior executives” for any breach and against all other workers for breaches occurring prior to September 4, 2024. The FTC defines a senior executive as an employee who earns more than $151,164 annually (annualized base salary plus commissions, performance bonuses, and any other compensation the employee can rely on receiving) and who has the authority to make policy decisions for the entire company.
Notice requirement for existing noncompete clauses
For all current and former workers covered by noncompete language the employer is required, by September 4, 2024, to provide them with clear and conspicuous notice that the worker’s non-compete clause will not be, and cannot legally be, enforced against the worker. The notice must be: 1) hand delivered to the worker; 2) sent via mail to the worker’s last known personal street address; 3)sent via email to an email address belonging to the worker; or 4) by text message to a mobile telephone number belonging to the worker. The following is the model notice language provided by the FTC under the new regulation:
A new rule enforced by the Federal Trade Commission makes it unlawful for us to enforce a non-compete clause. As of [DATE EMPLOYER CHOOSES BUT NO LATER THAN EFFECTIVE DATE OF THE FINAL RULE], [EMPLOYER NAME] will not enforce any non-compete clause against you. This means that as of [DATE EMPLOYER CHOOSES BUT NO LATER THAN EFFECTIVE DATE OF THE FINAL RULE]:
- You may seek or accept a job with any company or any person—even if they compete with [EMPLOYER NAME].
- You may run your own business—even if it competes with [EMPLOYER NAME].
- You may compete with [EMPLOYER NAME] following your employment with [EMPLOYER NAME].
The FTC’s new rule does not affect any other terms or conditions of your employment. For more information about the rule, visit ftc.gov/noncompetes. Complete and accurate translations of the notice in certain languages other than English, including Spanish, Chinese, Arabic, Vietnamese, Tagalog, and Korean, are available at ftc.gov/noncompetes
Conclusion
Employers only have a limited amount of time to comport with these new FTC regulations governing noncompete enforcement before September 4, 2024. While it is imperative that employers make plans to accomplish these changes before the deadline, these new regulations may be subject to change. Employers wanting to delay the implantation of these new rules to the last possible moment should therefore monitor the FTC website for any possible changes to the regulations prior to the deadline.
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