FTC Rule Banning Non-Competes Set to Take Effect September 4, 2024

August 14, 2024

As reported in a prior alert (on April 26, 2024), the Federal Trade Commission (“FTC”) issued a final rule (the “Rule”) on April 23, 2024 banning employers from entering into non-compete agreements with all workers. The Rule invalidates existing non-competes with all workers except those entered into with senior executives and those entered into in connection with the sale of a business. The Rule requires employers to notify workers that their non-competes will not and cannot be legally enforced. The Rule takes effect September 4, 2024.

Legal Challenges to Date Have Proven Unsuccessful

Several lawsuits have been brought challenging the Rule; however, none have successfully resulted in a nationwide injunction barring its enforcement. It is plausible that additional challenges may result in an order staying, enjoining, and/or invalidating the Rule before it takes effect.

Enforcement

The Rule provides that the use of non-competes in violation of the rule is an “unfair method of competition” that violates Section 5 of the FTC Act. Violations of the FTC Act can result in fines, penalties, and other injunctive relief.

What Can Employers Do to Ensure Compliance?

Employers must notify workers who are bound by existing non-compete agreements that the agreements will not be enforced against them. The FTC has provided model language to assist employers with this communication. 

The required notice must:

(i)  Identify the person who entered into the non-compete clause with the worker;

(ii) Be on paper, delivered by and to the worker, or by mail at the worker’s last known personal street address, or by email at an email address belonging to the worker (including the worker’s current work email or last known personal email), or by text message at a mobile telephone number belonging to the worker.

If a person that is required to provide notice has no record of a street address, email address, or mobile telephone number, such a person is exempt from the notice requirement with respect to such worker.

Employers have the option to provide the notice in additional languages other than English or include links to translations in additional languages.

Employers should plan to review non-compete agreements entered into with current and former employees to determine if those agreements will be invalidated.

For further information about the FTC Non-Compete Rule, contact Allyson E. Kurker and Margaret H. Paget at Kurker Paget LLC.