The Federal Trade Commission (FTC) is gearing up to implement a sweeping new rule on September 4, 2024, that will essentially ban most post-employment non-compete agreements. This change is poised to shake up the employment landscape across the United States, giving workers more freedom to move between jobs and start their own businesses while also forcing employers to rethink how they protect their interests.
We previously explored the implications of this rule in our blog post, "The FTC Announces Rule Banning Non-Competes: A Game-Changer for American Workers". Now, as the deadline approaches and legal challenges unfold, it's time to dive deeper into what this means for both employers and employees.
The Scope of the FTC Non-Compete Ban
The FTC’s Final Rule is broad, covering a wide range of industries and affecting both employees and independent contractors. But there are some important exceptions to be aware of:
Senior Executives: Non-compete clauses remain valid for workers earning more than $151,164 annually in policy-making roles. The rule doesn’t entirely eliminate protections for top executives.
Sale of a Business: Non-compete clauses that are part of the sale of a business or ownership interest in a business are also still allowed.
Pre-Existing Agreements: The rule doesn’t apply retroactively, meaning non-competes enforced before September 4, 2024, aren’t automatically voided—although this aspect is currently facing legal challenges.
The Legal Battle: What’s Happening in the Courts
As expected, this rule has sparked a series of legal challenges, leading to uncertainty about its future. Here’s what’s unfolding:
In Florida and Texas, courts have issued preliminary injunctions that block the FTC from enforcing the rule against the specific plaintiffs in those cases. These rulings suggest that the courts might be skeptical about the FTC’s authority to enforce this rule nationwide.
On the flip side, a court in Pennsylvania denied a similar request, which could mean the FTC has a decent shot at defending the rule.
With courts issuing conflicting rulings, the future of the FTC’s rule is uncertain. Employers should prepare for the possibility that the rule could be delayed or even struck down, but they also need to be ready to comply if the rule goes into effect as planned.
What Employers Should Do Right Now
Given all the uncertainty, employers are in a tough spot. However, taking proactive steps now can help mitigate potential risks:
Review Your Contracts: Take a close look at all your existing employment agreements, severance packages, and other relevant documents. Identify any non-compete clauses that will still be in place after September 4, 2024.
Check for Exceptions: See if any of those clauses fall within the rule’s exceptions. If not, be prepared to stop enforcing them.
Get Your Notices Ready: The FTC requires employers to notify affected workers that their non-compete agreements will no longer be enforceable. While it might make sense to wait until closer to the deadline, start drafting those notices now so you are not scrambling at the last minute.
Update Your Documents: Moving forward, make sure any new employment agreements don’t include prohibited non-compete clauses. It’s a good idea to work with legal counsel to get everything in order.
Explore Other Options: Just because non-competes are off the table doesn’t mean you are out of options. Consider using non-disclosure agreements (NDAs), non-solicitation clauses, and confidentiality agreements to protect your business.
What Employees Should Do Now
For workers, this rule could be a game-changer. Here’s what you should be doing to take advantage of the new landscape:
Review Your Contract: If you are currently bound by a non-compete agreement, now is the time to dig it out and see what it says. Pay attention to how the new rule might affect your situation.
Stay in the Loop: The legal situation is still evolving, so keep an eye on the news and court rulings. It’s important to know where things stand and what your rights are.
Think About Your Next Move: With non-compete agreements potentially off the table, you might have more freedom to explore new job opportunities or even start your own business. Consider how this change could open up new possibilities for you.
Talk to Your Employer: If your non-compete is likely to be voided, your employer should notify you. But don’t wait around—reach out and ask how they are handling the situation and what it means for your future with the company.
Understand Your Obligations: While non-competes may no longer be enforceable, other agreements like NDAs and confidentiality clauses still stand. Make sure you know what you are agreeing to and what you need to do to stay on the right side of the law.
Looking Ahead
As the September 4 deadline approaches, everyone is watching to see how the courts will rule. Both employers and employees should stay informed and be ready to pivot as the situation develops.
For workers, this rule is a win, giving you more freedom to move on to new opportunities without worrying about getting tied up in legal battles with your old boss. For employers, it’s a challenge, but with some planning and flexibility, you can navigate this new landscape.
The Wrap Up
The FTC’s Final Rule on non-compete agreements is set to bring about significant changes. While the legal battle continues, it’s smart for both employers and employees to prepare for what is coming. If you are unsure about what to do next, talking to a legal professional can help you navigate these changes effectively.