Author: Tabitha Taylor, Esq., Co-Managing Partner
FTC Ban of Noncompete Means A New Era for American Workplaces
The buzz in all industries right now centers on a new FTC ban on noncompetes. If you haven’t heard yet, the Federal Trade Commission (FTC) recently issued a Final Rule that bans most noncompete agreements in the US, significantly changing the environment for both employers and employees. Did you know that nearly 20% of U.S. workers are bound by a noncompete agreement? These agreements prevent employees from joining rival companies after their departure. In Florida, where these agreements have often been enforceable, the FTC’s ban is now causing major shifts for employers.
The FTC unveiled its groundbreaking Final Rule on April 23, 2024. It prohibits noncompete agreements across all sectors and positions within the U.S. workforce. The rule will take effect 120 days post-announcement, aiming for implementation around August 20-24, 2024.
Who the FTC ban Affects, and Who is Exempt
The new rule impacts all workers, both paid and unpaid, including independent contractors, by banning the creation of new noncompete clauses from the effective date onward. It prohibits the creation of new noncompete clauses starting from the effective date. However, it’s carves out an exception for “senior executives”—defined as individuals in policymaking positions2 earning over $151,164. Noncompete agreements already in place for these senior executives will remain valid until they naturally expire. After the rule takes effect, employers cannot form new noncompete agreements with these executives.
For workers not classified as senior executives, which includes all other employees and independent contractors currently under a noncompete, companies must provide written notice that these agreements are now unenforceable. The FTC provides a template to help employers draft these notifications with the correct language.
The rule also includes significant exceptions for bona fide business sales or substantial asset transfers and does not cover not-for-profit organizations. Furthermore, it does not impact noncompetes that are part of bona fide business transactions or legal proceedings initiated before the rule takes effect.
Addressing Employer Concerns: Keeping Your Business Safe
Many employers are understandably anxious about how the FTC’s ban on noncompete agreements will impact their ability to protect proprietary information and maintain a competitive edge. In fact, several lawsuits have already been filed against the FTC for issuing its new rule. The common fear is that without these agreements, employees could leave the company, taking valuable trade secrets or client relationships with them to a competitor. It’s important to debunk this myth: while noncompete agreements can offer a blanket of security, they are not the only, nor necessarily the best, method to protect your business interests.
Review Current Contracts
First, employers should review current noncompetes with employees or contractors and consult an attorney to assess their enforceability. This includes a comprehensive review of company policies in employee handbooks that may currently include noncompete clauses; these documents should be updated to reflect the new ruling.
In lieu of noncompetes, employers can use confidentiality agreements or nondisclosure agreements to protect sensitive information and company assets. These agreements can focus on protecting specific information and prevent employees from poaching customers or coworkers. Employers should protect company trade secrets by limiting access to sensitive information to essential personnel only and securing it properly, using confidentiality agreement.
Non-solicitation agreements also effectively protect a business, especially if noncompetes are unenforceable. These prevent former employees from poaching clients and colleagues for a set period after leaving the company.
Invest in Your Team
Another effective strategy is to invest in employee retention through positive incentives rather than restrictive contracts. Competitive salaries, career opportunities, positive environment, and valuable benefits can help retain talent. Employees who feel valued and happy are less likely to leave, thus reducing turnover risks and associated training costs for new hires. Combine these incentives with regular training on confidentiality and ethical information handling.
By exploring these alternatives, employers can protect their business while complying with the FTC’s new regulations, ensuring security and employee growth.
The Importance of Legal Expertise for Navigating Noncompetes
Navigating the implications of the FTC ban on noncompetes isn’t easy. It’s important to understand how such changes interact with existing company policies and employee contracts. Your attorney can help you restructure contracts and develop new compliance strategies. The goal is to ensure both protection for the company and adherence to the FTC ruling.
If you’re feeling unsure about how to proceed under the new FTC regulations, you’re not alone. Contact Bryant Taylor Law for a free consultation. Our firm is ready to help you update your practices and set up your business for success under the new regulations.
[1] https://www.ftc.gov/system/files/ftc_gov/pdf/Non-Compete-Fact-Sheet.pdf
[2] Someone in a “policy making position” is any individual who has authority to make decisions that control a significant aspect of a business entity, such as a president, chief executive officer, or any similar position.
