The Federal Trade Commission (FTC) implemented a new final rule prohibiting employers from enforcing non-compete agreements against employees. A non-compete agreement essentially bans a worker from moving to another employer within the same industry for a set period of time, citing the employer’s privacy and competition concerns. Non-compete agreements have traditionally restricted employee mobility by preventing workers from joining competing firms within the same industry for a set period. Employers often justified these agreements on the grounds of privacy and competition concerns, but the FTC has now stepped in to curb these practices.
On August 20, 2024, a federal court blocked the rule from taking effect, two weeks before its implementation date. The FTC is considering appealing the decision.
Understanding the FTC’s Non-Compete Rule
As of September 4, 2024, employers would no longer have been allowed to:
- Enforce non-compete agreements that were already in place.
- Create new non-compete agreements with employees.
The FTC’s rationale behind this rule is that non-competes are “an unfair method of competition,” which limits worker mobility, stifles wages, and hinders innovation. The FTC believes the new rule will:
- Increase wages.
- Encourage the formation of new businesses and innovation.
- Boost competition within the labor market.
- Provide additional antitrust protections.
Given the recent court decision holding the rule unconstitutional, it technically has not gone into effect. It’s unclear what the current path of the rule, pending the outcome of litigation and a possible appeal. In the meantime, and for those who want to abide by the spirit of the rule and what it aims to do, the following may assist you.
Who is Affected?
Before the rule, about 30 million workers, or 20% of the U.S. workforce, were bound by non-compete agreements, including many in non-decision-making roles. The rule primarily applies to most workers, with one major exception: senior executives who are directly involved in policy-making and earn over $151,164 annually are still allowed to have non-compete clauses in their contracts.
What Should Employers Do Now?
Now that the compliance deadline has passed, employers are encouraged to:
- Cease enforcement of all existing non-compete agreements, except for those with senior executives.
- Notify affected employees in writing that their non-compete agreements are no longer valid. The FTC has provided sample notice language employers can use on its website to help employers with this notification process.
An internal review should be conducted to identify all affected employees and ensure they are properly notified.
Ensuring Compliance with the FTC Rule
Even though compliance is not mandatory at this point, it’s possible the rule could eventually be appealed, and the court decision reversed. Should you decide to implement the rule within your own business. Rincker Law, PLLC is ready to assist you in conducting internal assessments, revising employment contracts, and ensuring your business meets all legal requirements.
If your company, farm or business entity is interested an internal compliance assessment with the new rule or other employment practices and laws, contact Rincker Law, PLLC at 217-774-1373 or at assistant@rinckerlaw.com. Our team can provide the support you need to navigate these changes smoothly.