In April, the Federal Trade Commission (“FTC”) enacted a new rule, set to go into effect on September 4th, 2024, that effectively eliminates most existing Non-Compete Agreements and prohibits new ones from being entered into within the United States. Although it is scheduled to go into effect, there are several court challenges to it, so there is a very real possibility that it will either not go into effect as scheduled or will be modified in some way. The Ryan LLC v. FTC case in the Eastern District of Texas is one to pay particular attention to.
Forward thinking employers should familiarize themselves with the new rule and prepare for its implementation. Within the industries regulated by the FTC–generally not banks, transporters of goods or people, and non-profits–all terms or conditions of employment that prohibit or penalize an employee from accepting work or running a business after leaving a job are unenforceable with limited exceptions. This definition is quite broad and may sweep within it those agreements that are not labeled as Non-Competes but that have the same result.
If you have any existing agreements that you have been attempting to enforce, this rule will not affect that enforcement for actions that occur before the rule goes into effect. So, existing lawsuits should not be greatly affected by this rule.
The FTC rule does not invalidate those existing agreements entered into with top-level leaders that have broad policy-making authority. Also, existing Non-Competes remain valid, and in fact new ones can be formed, if they are entered into when an business owner sells all of their interest in the entity.
Additionally, the new rule requires employers to notify existing and former employees that their Non-Compete Agreements are no longer valid. And the last day to provide this notice is the day the rule goes into effect. So, employers should get their ducks in a row and prepare to send these notices but may want to hold off doing so to see whether court challenges are successful and what their effect is on existing agreements.
If you need any assistance understanding whether your agreements are affected by this rule and what you should do about it, or if you want to discuss how best to protect your interests going forward, call IEL. We would be happy to work through this with you to ensure your business practices are compliant and that you are making decisions that will help you achieve your goals. Call us at (208) 901-3912 or email us at contact@idemploymentlawyers.com.