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The Federal Trade Commission (FTC) recently issued a new rule on April 23, which bans non-compete clauses for workers across all industries, with only a few exceptions. This new rule will prohibit most employee non-compete agreements with retroactive effect, except for the existing non-compete provisions. Furthermore, the rule also requires employers to notify their workers, including former employees, that the non-compete clauses are no longer in effect. As someone who has written extensively on this subject, I am thrilled to see noncompete clauses disappear. Do you have a viewpoint on this? #noncompete #executivesearch

FOLLOW UP POST REGARDING NEW FTC RULE TO BAN NON-COMPETE AGREEMENTS As stated yesterday, on April 23, 2024, the Federal Trade Commission (FTC) voted 3-to-2 to issue a final rule that will ban most employer-employee non-compete agreements. Who is Covered by the Rule? The final rule applies to all individuals, regardless of whether they are paid or unpaid. The term "worker" encompasses all natural persons who work or have worked, including those who fall under various employment statuses, such as employees, independent contractors, externs, interns, volunteers, apprentices, or sole proprietors. The rule applies to individuals without regard to their job title or other State or Federal laws. It is important to note that the rule encompasses all individuals who provide a service to an individual, regardless of their employment status or compensation. YES, the Final Rule Affects Existing Non-compete Agreements. The final rule, expected to be published in the Federal Register, would significantly impact non-compete agreements for employees not considered "senior executives." These workers earn less than $151,164 and are not in a policy-making position. According to the rule, any current non-compete agreements that exist for these employees would be rendered unenforceable after the effective date of the final rule, which is set to take place 120 days after publication in the Federal Register. Furthermore, the final rule would prohibit any attempts to enter into a non-compete agreement, enforce an existing non-compete agreement, or represent that a worker is subject to a non-compete agreement. In essence, the rule aims to provide more freedom to employees and limit employers' ability to restrict their ability to seek employment opportunities elsewhere in the industry. Legal Challenges Have Already Begun. Several challenges have been made to the final rule issued by the FTC on April 23, 2024. A complaint argues that the FTC lacks the statutory authority to issue the rule or that such authority violates the U.S. Constitution. The Chamber of Commerce also plans to sue the FTC, citing the ban on employer non-compete agreements as an unlawful power grab. As these challenges continue, there is still uncertainty regarding the final rule's viability and timeline. Courts could issue orders to stay the rule during ongoing litigations.

Noncompete Agreements in Japan ? (NOTICE: this article is for informational purposes only and should not be considered legal advice. We are not lawyers and the intent is not to provide legal information. For legal advice consult a lawyer.) ? The US Federal Trade Commission recently voted to ban noncompete agreements (see link below). ? In a former company we had an employee quit to join a competitor where the employee would do the same job as with us. This employee's work agreement included a noncompete clause. ? I spoke to a lawyer to see what our options were. His advice was to write to the new employer, explain the employee has a noncompete clause, and demand they not hire them as it would violate the noncompete. Of course, they ignored our letter. ? Our lawyer said we could take it to court. But that would take time, a few million yen in legal costs, and the best we could hope for was to have the employee stay home for a year, while we continued to pay their salary. At the end of the year they could then join the new company. ? Needless to say, we gave up and the employee continued their new job. ? Over the years my present company, iSearch Recruiting and Executive Search, has interviewed candidates who have a noncompete clause in their employment agreement. ? We have consulted with lawyers again and basically what we've been told is, noncompete agreements in Japan are recognized but enforcement is difficult. In Japan, an employee is free to choose the place of employment after terminating their current employment. This is guaranteed under the Constitution. As such, judicial precedents tend to strictly limit the permissible scope of imposing a non-competition obligation. In order for the non-competition obligation restrictions to be considered valid, the details of such non-competition need to be reasonable in that, the business line, or geographical area are minimally restricted, or compensatory measures are taken. It depends on specific conditions. Such clauses at the time of employment, or during employment are generally enforceable, while post-employment noncompete agreements are less so. ? Japan’s courts tend to adopt a balanced approach when determining the enforceability of a noncompete agreement. The courts consider things like the nature of the information being protected, the duration and scope of the noncompete, and any compensation paid to the employee to adhere to the agreement. For example, a payout may be spread over a fixed amount of time as long as the departing employee does not break the noncompete arrangements. If the noncompete agreement is overly broad or restrictive, the courts may nullify it due to a breach of public policy. Companies should structure such agreements with the advice of legal counsel to achieve the goal of protecting the company’s interest while respecting the employees’ freedom of choice of their livelihood. https://lnkd.in/gc_srjjs ? ?

If you think the NCAA Transfer Portals have created havoc in sports, wait until you see the fallout from the new FTC rule issued yesterday that bans and effectively cancels most existing and future non-compete agreements nationwide. The new rule applies to anyone who works for a for-profit employer, whether paid or unpaid, and to independent contractors. It prohibits employers from entering into new noncompetes with any employee, including senior executives. But here’s the extra kicker: The rule also blocks employers from enforcing existing noncompetes with any employees other than senior executives (those in a “policy-making position” who earn more than $151,164 annually). Think about the economic and competitive impact on the employers who hired, trained and paid those employees. The rule excludes noncompetes entered into by a person during the "bona fide sale of a business". It also permits limited use of non-compete agreements between franchisees and franchisors. To criticize the new rule as “sweeping and unprecedented” doesn’t do it justice. The FTC claims the new rule will affect 30 million workers and lead to $400-$488 billion in increased wages over the next decade. The rule marks the first time in more than 50 years that the FTC has issued a regulation to mandate an economywide change in how companies compete. The rule relies on a 110-year-old law that prohibits unfair methods of competition. If you had to craft a regulation to test the Supreme Court’s concern about administrative agencies using regulations to address “major questions” more suitable for Congress or state legislatures, this would be a good example. The U.S. Chamber filed suit this morning to block the rule. You can read the complaint here: https://lnkd.in/euZB8K34 ?Hopefully, we will see a Federal District Court enjoin enforcement until the rule can be fully adjudicated on appeal. In the meantime, uncertainty will reign. While labor unions and workers will be cheering the sweeping breadth of the new rule, they may be disappointed with the final results, which may be to return noncompete regulation to the states. (California has outlawed noncompetes for some time.) The sad part of all this is that many businesses have misused noncompetes for years, demanding them from lower-level employees from health care workers, hairdressers and even restaurant employees. The sweeping new FTC rule corrects these abuses but fails to recognize the value and order that noncompetes bring to companies—especially startups—that rely on key employees performing activities that involve highly sensitive IP. Think AI, for example. For more thoughts on the pros and cons of the FTC’s effort to regulate noncompetes, read my post from January 2023 at: https://lnkd.in/eU6jX6NE ?#noncompetes #humanresources #employees #HR #law #FTC

On April 23, 2024, the FTC announced its Final Non-Compete Clause Rule (“Final Rule”), which bans post-employment non-compete clauses between employers and their employees. The Final Rule becomes effective?120 days?after being published in the Federal Register (the “Effective Date”).? The Final Rule has already been challenged in court by at least two lawsuits, and we anticipate that the implementation of the Final Rule will be stayed pending the outcome of those lawsuits. Our detailed analysis of the Final Rule banning non-competes can be reviewed at the link below. A few big picture points (with more details in the link above): 1)?Effective Date: This will take effect 120 days after the rule is published in the Federal Register, subject to any court stays.?Until the Effective Date, all non-competes remain enforceable. 2)?Non-competes with “senior executives” (employees earning over $151,164/year and in a policy making position for the entire organization) that are already in place can continue to be enforced after the Effective Date, but is intended to be interpreted very narrowly to the very top executives of a company.?However, new non-competes with such employees will not be permitted to be entered into after the Effective Date. 3) Non-competes are still permitted as part of a bona-fide sale of a business entity. 4)?Employers can still enforce non-competes where the cause of action arose prior to the Effective Date. 5)?Garden leave provisions (where an employee remains employed and receiving salary and benefits) are still enforceable. 6)?Because of the FTC’s authority limitations, the ban does not apply to non-profit organizations, nor to banks, savings and loans institutions, federal credit unions, common carries, air carries, and foreign air carriers, as well as to businesses subject to the Packers and Stockyards Act. 7)?Notice of Non-Enforcement requirement - Similar to the law in California, employers must provide notice to their employees who have non-compete restrictions that any existing non-competes will not be enforced against the employees (except as to existing senior employee non-competes).?This notice most be given by the Effective Date (around August 1, 2024, perhaps a few days earlier) by hand-delivery, mail at the employee’s last known street address, by email, or by text message. 8)?The Final Rule does not prohibit other restrictive covenants, such as non-solicit or clients or employees, so long as they are not so broad as to effectively prevent the employee from working elsewhere.?However, the definition of a non-compete is such that a broad reading of it could be interpreted broadly to include non-solicits under some circumstances. We will continue to monitor and update you as developments arise.?Please do not hesitate to contact me with any questions.

The abolition of noncompete agreements may be the single greatest advancement of a free market economy since the Emancipation Proclamation. ?? Employers will fight the FTC's ban on noncompete agreements stating that they are necessary to protect trade secrets. They are not. Nondisclosure agreements protect trade secrets: noncompete agreements restrict labor markets. If you didn't read the noncompete agreement you signed when you were hired, now is a good time to read it. You will probably see that the agreement requires you to provide all future employers a copy of the agreement. It probably also prohibits you from working for a competitor that operates within 50 miles of anywhere your current employer operates -- which general equates to anywhere on Earth if you work for a large company or a company that wants to market its products worldwide. And, it probably has a vague description of what the company does, the market(s) it competes in, and the competitors covered by the agreement. For example, if you work in technology, it means you cannot go work for another technology company; or if you work in healthcare, it means you cannot work for another healthcare company; or if you manufacture automobiles you cannot work for another auto company. You get the idea. These so-called agreements are the opposite of a free market. They prevent people from using the knowledge and expertise they have developed and selling those skills to the highest bidder when scouting for a new job. Before remote work became popular, many workers under noncompete agreements would have to commute over 50 miles or move to another state in order to find new employment. Additionally, these noncompetes have given employers the upper-hand and often lead to people staying in hostile and toxic work environments. I could tell you stories of my own experiences with noncompete agreements; however, I can't because that would violate the nondisclosure agreements ?? https://lnkd.in/ecfsYfsZ

???? Please read and share this article if you own a business or know a business owner! On April 23, 2024, the Federal Trade Commission (FTC) issued, by a 3-2 vote, a sweeping final rule ("Final Rule") that effectively bans the use of non-compete agreements as a term or condition of employment. The Final Rule has limited exceptions and is scheduled to go into effect 120 days after it is published in the Federal Register (the "Effective Date"). Key Takeaways: ? After the Effective Date, employers are banned from entering into non-compete Agreements, including de facto non-competes agreements, with "all workers;" ? Non-Compete Agreements entered into with senior executives prior to the Effective Date are enforceable, but all other non-compete agreements entered into prior to the Effective Date are not enforceable; ? Employers must notify applicable employees that their existing non-compete agreements are void; ? The Final Rule preempts all state laws that would otherwise permit non-compete agreements. Please click below to read the full article. https://bit.ly/3JAxdyk

This week the FTC voted to implement a ban on non-compete agreements nationwide, calling them an “unfair method of competition.” The rule, once effective, will prevent companies from enforcing existing non-competes on any workers other than senior executives. Check out key takeaways from Liz Hartsel and Leni Plimpton pasted below, and read the linked article to understand what employers should consider doing now. Key takeaways: ?? ALL non-competes in existence prior to the effective date will soon be unenforceable nationwide?except for senior executives.? ??No new non-competes are allowed after the effective, even for senior executives. ??The rule broadly defines “worker” to include independent contractors. ??The rule contains an exception for non-competes entered as part of the sale of a business. ??Knowing failure to follow the rule can subject the violator to penalties of $10,000 per violation. ??Employers must give written notice, within 120 days of the Effective Date, to all employees subject to a non-compete (who do not qualify as senior executives) that informs them that their existing non-compete agreement is unenforceable. #noncompetes #noncompetitionagreements #noncomete #ftc #newruling https://lnkd.in/eXs6pdpe

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