Restrictive covenants covered by the FTC rule restricted by a non-compete .
IN THE PROFESSION
The FTC rule affects non-competes , which have been defined in the rule as : ( 1 ) A term or condition of employment that prohibits a worker from , penalizes a worker for , or functions to prevent a worker from : “( i ) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition ; or ( ii ) operating a business in the United States after the conclusion of the employment that includes the term or condition .”
This definition conspicuously omits customer nonsolicitation covenants , employee non-solicitation / nohire covenants , and confidential information / trade secret non-disclosure covenants , to the extent that such covenants do not otherwise operate in a manner in which they would fall under the rule ’ s definition of a non-compete . Thus , the use of traditional non-solicit and non-disclosure covenants remains governed by state laws and is not affected by the new rule .
For senior executives , however , the rule only partially bans non-competes . In particular , the rule makes it unlawful : “( i ) To enter into or attempt to enter into a non-compete clause [ after the effective date of the rule ]; ( ii ) To enforce or attempt to enforce a non-compete clause entered into after the effective date ; or ( iii ) To represent that the senior executive is subject to a noncompete clause , where the non-compete clause was entered into after the effective date .”
In essence , this means that , for senior executives , all existing non-competes and any non-competes that are entered into before the effective date of the rule ( August 21 , 2024 ) will remain valid and enforceable , but any non-competes entered after the effective date of the rule are invalid and unenforceable . Further , a company may not convey to another company that one of its senior executives is restricted by a non-compete if the noncompete was entered into on or after the effective date of the rule .
Specifics of the FTC rule
The rule is broken down into two types of workers , “ senior executives ” and those who are not senior executives . Senior executive is generally defined as a worker who : “( 1 ) Was in a policy-making position ; and ( 2 ) Received from a person for the employment : ( i ) Total annual compensation of at least $ 151,164 in the preceding year . . .” Essentially , a senior executive is an officer of a company ( e . g ., CEO , president , vice president , controller , etc .) who makes policy decisions that affect the entire business and who makes at least $ 151,164 per year .
For all workers who are not senior executives , the rule completely bans non-competes . In particular , the rule makes it unlawful : “( i ) To enter into or attempt to enter into a non-compete clause ; ( ii ) To enforce or attempt to enforce a non-compete clause ; or ( iii ) To represent that the worker is subject to a non-compete clause .” Generally speaking , this means that , for all workers other than senior executives , existing non-competes are retroactively banned and unenforceable , and companies are prospectively prohibited from having workers enter into non-competes . In addition , a company may not convey to another company that one of its workers is www . atlantabar . org THE ATLANTA LAWYER 15