Before you sign that noncompete agreement...

The Federal Trade Commission (the “FTC”) has sent shockwaves throughout the country with its new noncompete ban. ?Some are applauding the move and others are reeling from it. ?

Regardless of which reaction you have, the ban will be effective September 4, 2024. ?You will want to be prepared for it.?

So let’s talk about why this noncompete ban matters.?

Amanda

The Noncompete Rule (aka Noncompete Ban)

On April 23, 2024, the FTC issued its final rule, enacting a nationwide ban on noncompete agreements in nearly all employment agreements. ?

The FTC issued this rule in order to grant U.S. workers the power to change jobs, create new businesses and increase innovation, even if that means directly competing with your business. ??

According to the FTC, noncompete agreements violate Section 5 of the Federal Trade Commission Act. ?

In other words, it is an unfair method of competition for employers to make an employee sign a noncompete agreement or for employers to enforce a noncompete agreement against an employee. ?

Of course, there are a few exceptions to the rule.?

What are the Particulars?

This new noncompete rule is causing a big shift in our country, affecting how we run our businesses and how we protect workers' rights. ?The FTC is adamant about enforcing this rule. ?So, let’s cover some particulars about the rule to help you get ahead of this change:?

1. Who does this noncompete rule apply to??

This rule applies to any person who or business entity that (a) makes a worker agree to a noncompete, (b) enforces a noncompete against a worker or (c) ?tells a worker that the worker is subject to a noncompete.?

2. Who is a “worker?”?

A “worker” includes, but isn’t limited to, an employee, independent contractor, extern, intern, volunteer, apprentice or a sole proprietor who provides a service to a person.?

It doesn’t matter whether the worker is paid or unpaid.?

3. What are the exceptions to this rule?

Yes, exceptions are (a) existing noncompetes for senior executives, (b) noncompetes used between a seller and buyer of a business, (c) enforcing your rights under a noncompete if the breach occurred prior to the rule’s effective date and (d) if you have a good-faith reason to believe you’re not subject to the rule. ?

4. Does this rule affect new or existing noncompete agreements??

Both. ?This rule invalidates most existing noncompetes and prohibits new noncompetes.?

5. When does this rule go into effect??

This rule is effective on September 4, 2024. You will want your business affairs in order by then.?

6. What if my state permits noncompetes??

If your state permits noncompetes, the FTC’s noncompete rule preempts (i.e., overrides) your state’s policy/law. ?

7. What if I’m in the healthcare field??

This is a little complex. ?Technically, the FTC does not have jurisdiction over nonprofit entities. ?This rule will not affect those nonprofits, including those healthcare entities that are nonprofits. ?However, ?to the extent the healthcare entity is or operates as a for-profit, this rule could apply. ?Please talk to an attorney, as this is a matter of research. Don’t assume either way.?

8. What are the consequence of noncompliance??

A worker could report a noncompliant company to the FTC. The FTC generally launches an investigation into a violation. From there, the FTC has several options, including bringing a court action.?

9. Is this something the FTC has the power to do??

The FTC is relying on its power under the Federal Trade Commission Act to enforce this rule. ?Businesses are suing the FTC now to prohibit the FTC from enforcing this rule. ?We are watching these cases to determine what happens next. ?Until then, we recommend taking steps to ensure your company is in compliance with this new rule by September 4, 2024.?

10. How can I protect my business if I don’t use a noncompete??

This is the biggest concern for most businesses in every industry and of every size. While the FTC is banning noncompetes, there are other possible alternatives to protect your business, including, without limitation, confidentiality agreements and non-solicitation agreements. ?However, these alternatives should not read like a noncompete.?

11. What do I need to do by the time this rule goes into effect??

If there are any existing noncompetes subject to this rule, you will want to notify those workers in writing that those noncompetes are no longer enforceable. The FTC provides sample language.?

If you have questions about how to navigate this new noncompete ban in your company, connect with us at?[email protected].

P.S. Whenever you're ready, here are a couple of ways I can help you:

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