Wednesday, April 24, 2024

FTC announces final rule banning noncompetes

Yesterday, the FTC released its final rule banning noncompetes (Announcement | Final Rule). Of course, we had some idea of what to expect from the proposed rule. But, as always, there were a few teaks in the final version. The final rule is 570 pages, so I haven't digested the whole thing yet, but here are some highlights:

The Gist

Employee noncompetes are an unfair method of competition and therefore unenforceable. In other words, it bans new noncompetes *and* renders existing noncompetes unenforceable. 

Effective Date

120 days after publication in the Federal Register - probably late August-ish, 

Changes from Proposed Rule

  • Existing noncompetes can still be enforced against "Senior Executives" (workers earning more than $151,164 who are in a "policy-making position"), but no new noncompetes. 
  • Employers are no longer required to formally rescind existing noncompetes. Instead, they can simply provide notice to the employee that the existing noncompete will not be enforced. The rule includes a model notice
Notable Exceptions
  • A noncompete in connection with the sale of a business (note that the Final Rule drops the 25% ownership requirement from the proposed rule).
  • Causes of action that accrue prior to the effective date.   
    Not official use. 

  • Non-Disclosure Agreements (NDAs);
  • Non-Solictation Agreements (client and employee); and
  • Training Repayment Agreement Provisions (TRAPs). 
Note that all of these come with the caveat that they must be narrowly tailored and not so broad as to effectively serve as noncompetes.

Of course, this entire thing comes with the giant caveat that there will likely be legal challenges to the FTC's authority to implement this rule. I plan as though it's happening, but wait until the last minute to actually implement (lesson learned from the salary threshold debacle of 2016).  

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