What You Need To Know About The FTC’s Ban On Most Non-Competes – Employee Rights/ Labour Relations

The Federal Trade Commission (“FTC”) issued a final
rule this week that bans almost all non-competition agreements
between employers and workers. But the rule is not scheduled to
take effect until late August or early September, and there is
already litigation challenging it.

The final rule, if it survives legal challenges, will impact
workers at all levels, from minimum wage to the C-suite. The rule
prohibits employers from entering into any term or condition of
employment that prohibits or penalizes a worker (including
employees and independent contractors) for, or functions to prevent
a worker from:

1. seeking or accepting work in the U.S. with another person after
   ceasing employment with the employer; or




2. operating a business in the U.S. after ceasing employment with
   the employer.

In addition to prohibiting new non-competes, the final rule
applies to existing non-competes.

The final rule does not have an impact on non-disclosure
agreements or non-solicitation agreements, except to the extent
they have the same operational effect as non-competes.

Exceptions to the Non-Compete Ban

The final rule carves out the following exceptions from the
ban:

• existing (not new) non-competes with a “senior
  executive,” meaning a worker who:
  

  • (i) was (a) in a policy making position, such as a president,
    chief executive officer, or equivalent, or (b) an officer of a
    business or natural person who had final authority to make policy
    decisions that control significant aspects of a business entity or
    common enterprise (excluding authority limited to advising or
    exerting influence over policy decisions or having authority to
    make policy decisions for only a subsidiary or affiliate of a
    common enterprise); and

  
  

  • (ii) earned a total compensation of at least $151,164 either
    (a) in the preceding year; (b) when annualized if the worker was
    employed for only part of the preceding year; or (c) when
    annualized in the preceding year prior to the worker’s
    departure if the worker departed from employment prior to the
    preceding year;




• non-competes entered into by a person pursuant to a bona fide
  sale of a business entity;




• any cause of action accrued before the effective date of the
  final rule, protecting any ongoing litigation from the implications
  of the final rule;




• enforcement, or attempts to enforce, a non-compete or to make
  representations about a non-compete where the employer has a
  good-faith basis to believe the final rule does not apply; and




• industries in which the FTC does not have jurisdiction under
  the FTC Act, such as banks, savings and loan institutions, federal
  credit unions, air carriers, persons and businesses subject to the
  Packers and Stockyards Act, and certain non-profit
  organizations.

Notice Requirement

Under the rule, companies must provide notice to any worker who
is not a senior executive by the effective date that the
worker’s non-compete is no longer in effect and will not be,
and cannot legally be, enforced against the worker. The notice
must:

1. identify the person who entered into the non-compete with the
   worker; and




2. be delivered (a) by hand to the worker; (b) by mail to the
   worker’s last known personal street address; (c) by email to
   an email address belonging to the worker; including the
   worker’s current work email address or last known personal
   email address; or (d) by text message to a mobile phone number
   belonging to the worker.

Effective Date

The final rule is set to take effect 120 days after its
publication in the Federal Register. (As of the date of this
writing the final rule has not yet been published.) However, as
noted above, the rule is already facing several legal challenges,
including by the U.S. Chamber of Commerce. Rich May will monitor
developments to these legal challenges.

No immediate action is required to be taken by employers;
however, employers should consider the impact that the final rule,
if it survives legal challenges, will have on both their present
and future employment agreements, and should review their current
policies and practices, and determine which workers, if any,
qualify as senior executives.

Additionally, companies that seek to acquire or sell businesses
should consider the impact the final rule, if it becomes effective,
will have in the context of mergers and acquisitions.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

POPULAR ARTICLES ON: Employment and HR from United States