FTC Noncompete Ban Still Set to Take Effect Sept. 4

The following article first appeared on Carmody Torrance Sandak Hennessy’s website. It is reposted here with permission.

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As previously reported, the Federal Trade Commission issued a final rule that, effective Sept. 4, 2024, invalidates nearly all existing noncompete agreements and bars employers from entering into future agreements.

The FTC’s rule has been subject to legal challenge but, to date, it has not been enjoined on a nationwide basis.

A Texas federal judge enjoined the rule only as it applies to the plaintiffs in that case. And, this week, a federal judge in Pennsylvania outright denied the plaintiffs’ request for injunctive relief.

What does this mean for employers?

While it is possible that a nationwide injunction could still issue, employers must assume that the rule will go into effect on Sept. 4, 2024, and be prepared to comply. 

Compliance

The final rule not only prohibits nearly all employers from entering into noncompete agreements with workers, but also invalidates all existing noncompete agreements except those entered into with “senior executives.”

A “senior executive” refers to a worker earning more than $151,164 and who is in a “policymaking position” as defined in the rule.

The rule also requires employers to notify current and former workers (excluding “senior executives”) subject to noncompete agreements that those agreements will not be, and cannot be, enforced.

The rule also requires employers to notify current and former workers subject to noncompete agreements that those agreements will not be, and cannot be, enforced.

The FTC has provided a model notice that employers can, but are not required to, use.

Employers must provide notice on paper delivered by hand to the worker or by mail at the worker’s last known personal street address.

Notice may also be provided by email at an email address belonging to the worker, including the worker’s current work email address or last known personal email address, or by text message at a mobile telephone number belonging to the worker.

The deadline for employers to provide notice is Sept. 4, 2024. Therefore, employers should not feel compelled to take any immediate action.

Legal Developments

Instead, employers should continue to closely monitor legal developments and be prepared to send out notices if the rule is not enjoined.

To this end, employers should: (a) determine what current and former workers have existing non-compete obligations that could be invalidated by the rule; (b) determine whether any of these impacted current or former employees would be considered “senior executives;” (c) compile contact information for these workers; and (d) develop a template notice.

Employers should also determine whether to enter into noncompete agreements for senior executives before the rule’s effective date and what other steps they can take to protect their business interests, such as implementing non-solicitation and confidentiality agreements, retention bonuses, and taking additional security measures to prevent the improper disclosure and use of proprietary trade secret and business information. 

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About the author: Nick Zaino is a partner at Carmody Torrance Sandak Hennessy and co-leader of the firm’s Business Services Group and Labor and Employment practice.