In a recent landmark vote, the Federal Trade Commission (FTC) banned nearly all existing and future noncompete agreements. The FTC has long argued that binding noncompete agreements are an unfair method of competition under Section 5 of the FTC Act.
For employees, understanding the details of this new regulation and knowing the necessary steps to take is crucial, as the new rule will significantly reshape the employment landscape.
Who Will Be Affected?
The FTC’s ban on noncompete agreements is extensive and will impact a wide range of workers. The ban will apply to noncompetes held by nearly every type of employee, including full-time and part-time employees, as well as independent contractors, interns, externs, volunteers, and apprentices, among others.
The ban includes limited exceptions. The ban does not apply to noncompetes held by some senior executives, who are defined as individuals in policymaking roles and earn over $151,164 annually.
Noncompete agreements linked to the sale of a business entity also are exempt, as well as those businesses that fall outside the FTC’s jurisdiction, such as banks, loan institutions, federal credit unions, common carriers, air carriers, and certain non-profits.
Anticipated Benefits of the Noncompete Ban
The ban aims to yield numerous benefits for workers and the economy, including reduced healthcare costs, the formation of new businesses, increased innovation in intellectual property, and higher employment earnings. The FTC backed the ruling with an extensively researched 568-page Final Rule, which details how noncompetes impede access to labor, harming workers, consumers, and competitive conditions, using research they started in 2018.
Although states are permitted to impose greater restrictions on noncompetes, state laws will be disregarded if they directly conflict with the FTC’s Final Rule.
Compliance Requirements for Companies
The FTC has issued guidelines outlining steps businesses must take to comply with the new rule, which first requires them to determine whether they qualify under any of the stated exceptions. The ban’s effective date is September 4, 2024, and employers will be required to give their employees “clear and conspicuous notice” of their noncompete’s unenforceability, as well as remove all relevant noncompete language from documents and agreements, company websites, and future employment contracts. Suspected violations of the noncompete ban can be reported to the FTC.
Ongoing Legal Challenges
Since the announcement of the Final Rule on April 23, 2024, three federal court cases have been filed challenging the noncompete ban. The first two cases, Ryan, LLC v. Federal Trade Commission and Chamber of Commerce of the United States of America et al v. Federal Trade Commission et al., were filed in Texas federal district court. The third case, ATS Tree Services LLC v. Federal Trade Commission, was filed in Pennsylvania federal district court.
All three lawsuits question whether the FTC has the constitutional authority to impose a blanket ban on noncompetes. These legal challenges create uncertainty about the ban’s implementation, as lawsuits typically take significant time to resolve. If the current lawsuits are still pending by September 4, 2024, the ban may be temporarily halted.
What Employees Should Do
Given these extensive changes, employees must take proactive steps to understand and assert their rights. Here’s a detailed guide on what you should do:
- Understand Your Rights. It is crucial to familiarize yourself with the specifics of the FTC’s Final Rule. Knowing that most noncompete agreements will be unenforceable is the first step toward ensuring your employment rights are protected.
- Review Your Employment Agreement. Carefully review your existing employment agreement to check if your noncompete falls under any of the outlined exceptions. If you do not fall into any of these categories, your noncompete is likely unenforceable under the new rule. However, if you are a senior executive earning more than $151,164 annually or involved in the sale of a business entity, your noncompete may still be enforceable. For those uncertain about the enforceability of their noncompete agreements, seeking legal advice is crucial. Potomac Legal Group can assist in reviewing any employment agreement you may have should you have questions about enforceability.
- Expect Employer Notification. Employers are mandated to notify employees about the unenforceability of their noncompete agreements. Ensure that this notification is clear and conspicuous as required by the FTC. Once the ban goes into effect on September 4, 2024, keep an eye out for this communication. If you do not receive this notification, consider reaching out to your HR department for clarification.
- Report Violations. If you suspect your employer is not complying with the new rule, or if you continue to face restrictions from an unenforceable noncompete agreement, you have the right to report these issues to the FTC. This step is vital to ensure that your rights are protected and that employers are held accountable for not adhering to the new regulations.
- Seek Legal Assistance. Navigating the nuances of employment law can be complex. Potomac Legal Group is available to help you understand the implications of the noncompete ban on your specific situation, and can provide personalized guidance and support to ensure that you are well-informed and prepared to take the necessary steps to protect your rights.
Moving Forward
As employers adapt to this significant change, staying informed and proactive will be key. Here’s how you can prepare for the transition:
- Stay Informed. Keep up-to-date with any further developments or state-specific regulations that might affect your noncompete status by regularly checking the FTC’s website and other reliable sources for updates on the implementation of the Final Rule.
- Engage with Professional Networks. Discuss the noncompete ban within your professional networks. Sharing information and experiences with colleagues can provide additional insights and support as you navigate these changes.
- Plan for Career Transitions. If you are constrained by a noncompete agreement, consider exploring new career opportunities. The removal of noncompete restrictions could potentially broaden your prospects and grant you access to previously inaccessible roles and industries.
- Advocate for Your Rights. If you encounter resistance or noncompliance from your employer, don’t hesitate to assert your rights. Utilize the resources available, including legal assistance and the FTC’s reporting mechanisms, to ensure that your rights are upheld.
By taking these steps, employees can better navigate the changes brought about by the FTC’s noncompete ban, ensuring a more secure and transparent employment future.
For personalized advice and more information on how the new noncompete ban may affect your employment, contact the attorneys at Potomac Legal Group. We are ready to help you navigate this transition and ensure that your rights are protected.