FTC Bans Noncompete Agreements

On April 23, the Federal Trade Commission (“FTC”) issued its final rule banning noncompete clauses in employment agreements. Barring a successful legal challenge (including lawsuits already filed in Texas courts), the rule will take effect 120 days after publication in the Federal Register. At that time, employers who have employees under existing noncompete agreements will be required to notify those employees that their agreements are no longer enforceable (model notice here). One narrow exception is carved out for senior executives who have existing agreements. Senior executives are defined as workers who earn more than $151,164 annually and are in “policy-making positions.” Further, the FTC noncompete ban does not apply to noncompetes entered into by a person pursuant to a bona fide sale of a business entity.

Noncompete agreements have been under recent attack from multiple governing bodies. For example, the NLRB recently issued guidance that noncompete agreements violate employees’ rights under the National Labor Relations Act. Four states have previously banned noncompetes, California, Minnesota, Oklahoma, and North Dakota, each with a different basis for its decision. A dozen other states have implemented restrictions on noncompete agreements, many with rules that subject employers to fines for non-compliance. Notably, the FTC rule specifies that it preempts all state laws that conflict with it, so less restrictive state laws addressing this issue will simply become moot.

We advise that employers act now to evaluate their employment-related agreements. Narrowly drafted trade secret related agreements, nonsolicitation agreements, and nondisclosure (confidentiality) agreements are still allowed under the rule and by the National Labor Relations Board. Lake Effect can help you evaluate your needs and recommend the right employment agreements for your business. We are also watching legal challenges to this final rule and will continue to keep you apprised.

Lake Effect is here to answer all your questions about employment laws, regulations, and new agency guidelines. We continue to monitor important legal and HR developments, as well as other information that could impact the workplace. Please watch our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at info@le-hrlaw.com or 1-844-333-5253. 

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