In a landmark decision, the Federal Trade Commission (FTC) voted 3-2 yesterday to approve regulations aimed at effectively prohibiting the use of non-compete agreements in the majority of employment contracts across the United States. This decision marks a significant shift in employment practices, impacting employers and employees alike. Here’s a breakdown of the key provisions of the new FTC non-compete Rule:
Notice Requirements:
- Employers must provide notice to all employees who have entered into non-compete agreements that such clauses will no longer be enforceable.
- The notice must specify the parties involved in the agreement and must be delivered via hand delivery, mail, email, or text message to the employee’s last known contact information.
- Model language for the notice is provided within the Rule.
Rule Exceptions:
- Senior executives earning at least $151,164 annually and holding policy-making positions are exempt from the new regulations. However, employers are prohibited from entering into or enforcing new non-compete agreements with senior executives.
- Non-compete agreements arising from the bona fide sale of a business entity or substantial assets of an entity are also exempt from the Rule.
- The Rule does not have retroactive effect, meaning violations occurring before its effective date will not be impacted.
Next Steps for Employers:
- Employers should closely monitor litigation, such as the Chamber of Commerce’s legal challenge, which may impact the enforcement or implementation of the Rule.
- Begin the process of providing notice to employees affected by existing non-compete agreements.
- Take measures to safeguard confidential information and trade secrets, considering the increased mobility of employees to work for competitors.
The Rule is expected to become effective 120 days after its publication in the Federal Register, estimated to be within the next 4-5 months.
In light of these changes, employers are encouraged to seek legal counsel to ensure compliance with the new regulations and to protect their interests in maintaining confidentiality and preventing unfair competition. For guidance on navigating these evolving employment practices, employers can consult with legal experts, including the Chair of CDF’s Trade Secret Practice Group.
