Understanding the FTC's New Rule on Noncompetes

In this weekends newsletter we are writing to provide you with an important update regarding the Federal Trade Commission's (FTC) final rule, which institutes a nationwide ban on noncompete agreements. This landmark decision is set to reshape the landscape of employment and competition across various industries.

Overview of the FTC’s Final Rule: The FTC has issued a final rule to ban noncompetes nationwide. This move is designed to enhance competition, support worker mobility, and foster innovation and new business formation. The FTC Chair, Lina M. Khan, highlighted that eliminating noncompetes could boost new startups by over 8,500 annually and increase average worker earnings by $524 per year.

Implications for Senior Executives: It is crucial to note that the new rule predominantly affects nonexecutive employees. Existing noncompetes for senior executives, defined as those earning more than $151,164 annually and in policy-making positions, will remain enforceable. This distinction ensures that our core leadership and strategic interests continue to be protected under the current framework.

What This Means for Employers: While the ruling opens new avenues for most employees, it does not leave employers without recourse. To safeguard proprietary information and maintain competitive advantages, employers can utilize alternative legal tools such as:

• Trade Secret Laws and Non-Disclosure Agreements (NDAs): These are well-established methods to protect sensitive information. Over 95% of workers with a noncompete are already covered under NDAs.
• Non-Solicitation and Non-Raid Agreements: These agreements prevent employees from poaching your workforce and soliciting your clients, helping preserve your team and client base.

Next Steps for Compliance: For those bound by existing noncompetes, employers will need to provide notice that these agreements will not be enforced moving forward, except for senior executives. The FTC has provided model language to facilitate this communication, ensuring clarity and compliance.

Conclusion: This new rule represents a significant shift in how businesses will handle employment agreements and competition. It will also affect the #Automotive Business because some large dealer groups have used this as a practice to bootsrap certain General Managers to not leaving to a store across town, and it affects vendors because many people will want to leave faster if the culture is toxic and the company lacks leadership. It also reaffirms the importance of strategic employment practices that align with both legal requirements and organizational goals.