On April 23, 2024, the US Federal Trade Commission (FTC) announced its final rule banning most noncompete agreements based on the argument that they are an unfair method of competition. Claudia St. John with The Workplace Advisors discusses this ban which will go into effect 120 days after it is published in the Federal Registry.
As of the effective date, employers may not enter into new noncompete agreements or enforce noncompete agreements for any employees other than senior executives defined as those who make more than $151,164 per year and are in a position to make policy.
For this purpose, noncompete agreements or clauses are defined as “a contractual term that blocks a worker from working for a competing employer, or starting a competing business, within a geographic area and period of time” after employment ends.
At this point, the rule does not impact other restrictive covenants such as nondisclosure agreements but may if they are so broad as to have the effect of a noncompete. The rule will preempt state and local laws which do not offer employees these or greater protection.
Employers will be required to notify employees in writing if their noncompete clauses will no longer be in effect and enforced.
The FTC estimates that almost 30 million people are subject to noncompete clauses and that by banning these noncompete agreements, the FTC estimates that wages will increase, health care costs will decrease, innovation will increase, and more than 8,500 new startups will be created each year once the ban takes effect.
While legal challenges are expected, employers should have all of their current noncompete agreements and clauses reviewed by legal counsel as well as the positions of the employees who signed them to determine if they are legal and enforceable. Legal counsel may be able to offer suggestions to possibly keep them enforceable in certain situations.
Employers will need to provide written notification to any employees who will no longer be held to their noncompete agreement, for which the FTC provided model language.
Employers should also have legal counsel draft new noncompete agreements going forward.
The Workplace Advisors will continue to follow these changes as they are announced.
Connect with us!
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E-mail:
claudia@theworkplaceadvisors.com
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Website:
http://www.theworkplaceadvisors.com
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LinkedIn:
https://www.linkedin.com/in/claudiastjohn/
https://www.linkedin.com/company/theworkplaceadvisors
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