Margaret Gentzen, Attorney
Haley Spiewak, Law Clerk
The issuance of a final rule by the U.S. Federal Trade Commission (FTC) banning most non-compete agreements has just been announced. With millions of workers set to be affected, the rule will take effect 120 days after its publication in the Federal Register. However, it is anticipated that the FTC final rule will be delayed due to legal challenges. In fact, the U.S. Chamber of Commerce has already filed suit in Texas to enjoin the Rule from going into effect. If the Rule goes into effect, all existing state laws would be preempted unless they provide greater protection than the new FTC rule.
A non-compete clause, defined by the FTC, means a contractual term that may prohibit a worker from working for a competing employer or starting a competing business within a specific geographical area or for a set period of time.
The FTC determined that non-compete agreements constitute an unfair method of competition, violating Section 5 of the Federal Commission Act. The ban prohibits all new non-compete agreements for all workers, including senior executives. However, existing non-competes already in place for senior executives may remain in place so long as the senior executive earns more than $151,164 annually and is in a policy-making position. For non-senior executives, existing non-competes would become void, and employers will be required to provide clear and conspicuous notice to current and former employees regarding the termination of these clauses. The FTC provides four methods employers can provide notice to a worker who has entered into a non-compete clause:
- By paper hand delivered to worker
- By mail to worker’s last known personal street address
- By email belonging to worker (including current work email address or last known personal)
- By text message to mobile telephone number belonging to worker
If an employer has no record of a street address, email address, or phone number, they are exempt from the notice requirement. Furthermore, bona fide sales of business are exceptions to the new rule, meaning a non-compete entered into with an individual for the sale of a business made in good faith will remain in effect.
It is recommended that employers stay up to date with the possible legal challenges that may arise against the FTC. In the meantime, employers should review their current non-compete agreements in place. Currently, non-disclosure agreements (NDAs) and non-solicitation agreements remain unaffected by the FTC ruling.
If you are an employer that has more questions regarding the FTC non-compete agreements ruling, contact Fox Smith at 314-588-7000.