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FTC Bans Non-Compete Agreements

FTC bans non-competes

Are Non-Compete Agreements Banned?

On April 24, 2024, the Federal Trade Commission (FTC) issued a rule banning non-compete agreements for employees. It will become effective 120 days after publication in the Federal Registrar. Employees should immediately work on updating their employment agreements and employee handbooks to comply with the new FTC rule.

How Does the FTC Ban Impact Current Non-Compete Agreements?

Existing non-compete agreements are not enforceable once the FTC ban becomes effective, except for senior executives. A senior executive is defined as a worker earning more than $151,164 who is in a “policy-making position.”

For those workers to which this ban applies to, employers must provide workers that existing non-compete agreements notice that they are no longer enforceable.

Does the FTC Ban Have Exceptions?

The FTC ban does have a few exceptions including:

  • Non-competes entered into by a person who is selling a business,
  • If there was a lawsuit to enforce a non-compete that would have been enforceable before the effective date,
  • If a party believes there is a good-faith basis that the FTC ban is inapplicable, and
  • Non-competes in franchisor-franchisee relationships.

What Happens if an Employer Violates the FTC Non-Compete Ban?

An employee can report an employer to the FTC for violations. Under FTC rules, employees do not have a “private right of action” meaning an employee cannot sue an employer. However, the non-compete will likely not be enforceable if an employer tries to enforce the non-compete.

In addition, the FTC may either pursue an adjudication under section 5(b) or seek an injunction in Federal court under section 13(b) against a party that has engaged in an unfair method of competition. The FTC cannot obtain civil penalties or other monetary relief against parties for using an unfair method of competition, although it can obtain civil penalties in court if a party is ordered to cease and desist from a violation and fails to do so.

What Else Can Employers Do to Protect Themselves from Competition?

Employers can still use confidentiality agreements, trade secret laws, and laws related to intellectual property. We know that employers invest a lot and share a lot of proprietary information with their employees so protecting their business interests is still really important. We help our clients have strong confidentiality and other clauses to protect a business from employees who steal information to compete with a former employer.

If you need help with updating your employment agreements or employee handbooks, contact us today.

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