IN THE PROFESSION
Therefore , with senior executives , a small window exists — until August 21 , 2024 — for companies to require their senior executives to sign non-competes that would otherwise be prohibited by the rule . This window does not exist for workers who are not senior executives .
Effective date of the FTC rule and required notice to workers covered by non-competes
As stated above , the effective date of the rule is August 21 , 2024 . Why is this important ? Well , the rule imposes quite a harsh burden on companies to notify their workers as to the status of their non-competes .
Between now and August 21 , 2024 , companies are required to inform their non-senior executive workers who are currently subject to non-competes that such non-competes are no longer valid . This notice provision applies to a company ' s current workers and its former workers . The rule provides model language for the notice , as well as details on the form of the notice and method of delivery .
A company is exempt from the notice requirement for a particular worker if the company “ has no record of a street address , email address , or mobile telephone number ” for such worker .
Exceptions to the FTC rule
Importantly , though , the FTC did allow for three exceptions from the non-compete ban .
First , non-competes are allowed if they are entered into as part of a sale of a business . Specifically , this includes the “ bona fide sale of a business entity , of the person ’ s ownership interest in a business entity , or of all or substantially all of a business entity ’ s operating assets .”
Second , the rule does not prohibit any claims for violations of non-competes that had already accrued before August 21 , 2024 ( the effective date of the rule ). Thus , for example , if a company discovers on August 20 , 2024 , that one of its workers subject to a non-compete has been working in a new position that violates the worker ’ s non-compete , the company can file suit against the worker for violation of the non-compete .
Third , a company is free to enforce a non-compete or represent that a worker is subject to a non-compete where the company has a “ good-faith basis to believe that [ the rule ] is inapplicable ” to the non-compete at issue . This may arise where a higher-level worker arguably falls under the definition of senior executive , and the company believes that the non-compete ban does not apply to the worker .
Challenges to the FTC rule
Given the breadth of the FTC ’ s ban and the fact that the ban was issued via an FTC rule and not directly by congressional action , challenges have arisen to the enforceability and validity of the rule . Specifically , court challenges have been filed asserting that the FTC does not have the authority to issue rules that define particular types of unfair competition and requesting to enjoin the rule until a full-fledged court case on the enforceability and validity of the rule can be heard .
What does this mean ? The court hearing the challenges is currently considering whether or not to issue an injunction that would pause the new rule . If the court issues an injunction , then the rule will not immediately go into effect on August 21 , 2024 , and the rule will be paused until the conclusion of the court case and any subsequent appeals . If an injunction is not issued , the rule will go into effect on August 21 , 2024 , and the court case will proceed on the enforceability and validity of the rule .
What does this mean for your clients ?
Many of your clients will be contacting you on how this new rule affects them . The rule is extremely nuanced ; there is no one-size-fits-all guidance .
For companies , prudent guidance may be to advise companies to pause on issuing any new non-competes to its employees , other than senior executives . In addition , though , businesses should begin taking steps and prepare to send notices to workers that their noncompetes are no longer valid and enforceable , should the rule go into effect on August 21 , 2024 .
For workers , this new rule is a boon . Non-senior executives are now free to accept jobs at competitors . Previously , such workers have been forced to seek employment outside of their areas of expertise until their non-competes had run .
16 MAY / JUNE 2024