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FTC Imposes Sweeping Ban on Non-Compete Agreements In Employment 
Apr 24, 2024

FTC Imposes Sweeping Ban on Non-Compete Agreements In Employment 

Topics: Legal Information, New Laws & Legislation, Non-Compete and Trade Secrets

Yesterday, the Federal Trade Commission’s (“FTC”) Commissioners’ voted 3-2 to approve rules first announced in January 2023 to, essentially, ban the use of non-compete agreements in most employment relationships in the United States (“Rule”). The new Rule precludes enforcement of non-competes against almost all employees. And, similar to California’s mandate to employers to give notice to employees that non-competes will not be enforced (that was to be completed by February 14, 2024), the new rule requires employers to give employees (other than senior executives) notice that existing non-competes will not be enforced. A summary of the new FTC non-compete Rule’s requirements is set forth below. In addition, the FTC has already published a three-page Fact Sheet on the new rule, which is available by clicking here.

Litigation commenced today to attempt to enjoin the FTC’s rule from being enforced. The Chamber of Commerce of the United States of America commenced an action in the Eastern District of Texas for orders that the Rule is arbitrary, capricious and contrary to the law, that the Rule be vacated, that the FTC be enjoined from enforcement, and to delay the effective date of the Rule.

NOTICE REQUIREMENTS:

  • Must be given by the effective date of the Rule.
  • To each person who entered into a non-compete that the non-compete clause will not be enforced.
  • Identify the person or entity that entered into the non-compete agreement with the employee.
  • Model Language is provided in the Rule.
  • Delivered by hand, mail, email or text message to the employee’s last known address, email address or mobile phone number.

RULE EXCEPTIONS:

  • Senior Executives with existing non-compete agreements are exempt from the new FTC rules. Senior Executives earn at least $151,164 annually and are in policy-making positions with the employer (President, CEO, or other persons with authority to make policies similar to an officer). However, employers are banned from entering into or attempting to enforce new non-competes.  
  • A non-compete arising from a “bona fide” sale of a business. The rule will not apply to non-competes from the sale of a business entity, or a person’s ownership interest in a business entity, or all or substantially all of an entity’s assets.
  • No retroactive effect.  If a non-compete is violated before the effective date of the Rule, the claim may continue to be prosecuted.

NEXT STEPS FOR EMPLOYERS:

  • Monitor litigation, such as the Chamber of Commerce’s case, that might stay, enjoin or delay enforcement of the Rule.
  • Start the Notice Process.
  • Protect Your Information.

The rule becomes effective 120 days after it is published in the Federal Register, an estimated 4-5 months from now.

Employers seeking to protect confidential information and trade secrets should consult with counsel, including the author, Chair of CDF’s Trade Secret Practice Group, to ensure that their interests are protected as employees will be able to move with greater ease to work for competitors and to help ensure that notice is timely and properly provided to employees currently under non-compete agreements.

About CDF

For over 25 years, CDF has distinguished itself as one of the top employment, labor and immigration firms in California, representing employers in single-plaintiff and class action lawsuits and advising employers on related legal compliance and risk avoidance. We cover the state, with five locations from Sacramento to San Diego.

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About the Editor in Chief

Sacramento Office Managing Partner and Chair of CDF’s Traditional Labor Law Practice Group. Mark has been practicing labor and employment law in California for thirty years. His practice has a special emphasis on the representation of California employers in union-management relations and handling federal and state court litigation and administrative matters triggered by all types of employment-related disputes. He is also adept at providing creative and practical legal advice to help minimize the risks inherent in employing workers in California. He recently named “Sacramento Lawyer of the Year” in Employment Law-Management for 2021 by Best Lawyers®.
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