On April 23, 2024, the Federal Trade Commission (“FTC”) issued its long anticipated final rule regarding worker non-competition agreements. With limited exceptions, the FTC’s final rule will prohibit nearly all non-competition clauses for employees regardless of position, industry, or size of the employer.
The final rule mandates that, with respect to any worker other than a “senior executive”, an employer may not: (i) enter into or attempt to enter into a non-compete clause; (ii) enforce or attempt to enforce a non-compete clause; or (iii) represent that the worker is subject to a non-compete clause. A “worker” is defined under the rule to include not only employees but, also, independent contractors.
As for “senior executives”, an employer may enforce or attempt to enforce a non-compete clause that is entered prior to the effective date of the new rule. However, an employer may not enter into or attempt to enter into a new non-compete clause with a “senior executive” nor represent that the “senior executive” is subject to a non-compete clause if the non-compete clause was entered into after the effective date of the FTC’s rule. Under the rule, a “senior executive” is defined as a worker engaged in a policy-making position who earns at least $151,164 on an annual basis.
In addition, under the final rule, employers must provide notice to any worker that is subject to an existing invalid non-compete clause that the non-compete clause will not be enforced.
The new rule does not apply to non-compete clauses that are entered into pursuant to a bona fide sale of a business. Further, the rule does not apply to non-compete clauses between a franchisor and a franchisee.
The new rule is set to go into effect 120 days after its publication in the Federal Register. However, multiple lawsuits have already been filed challenging the legality of the rule and its ultimate fate is to be determined. Notwithstanding the legal challenges, employers should consult with qualified legal counsel regarding the rule and its implications.
For additional information please contact McNamee Hosea attorney, Charles H. Henderson.
Disclaimer: The opinions raised in this blog are solely those of the author. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation.
