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As we previously reported, the Federal Trade Commission (FTC) issued a Final Rule that, effective September 4, 2024, will invalidate nearly all existing non-compete agreements and would bar employers from entering into non-compete agreements with workers in the future.
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, more recently, 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 September 4, 2024, and be prepared to comply.
The Final Rule not only prohibits nearly all employers from entering into non-compete agreements with workers, but also invalidates all existing non-compete 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 “policy-making position” as defined in the Rule.
The Rule also requires employers to notify current and former workers (excluding “senior executives”) subject to non-compete 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 September 4, 2024. Therefore, employers should not feel compelled to take any immediate action. 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 non-compete 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.
For additional information, please contact a member of our Labor and Employment group.
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