Compliance with FTC Non-Compete Rule: Action Items to Consider

COMPLIANCE WITH FTC NON-COMPETE RULE
ACTION ITEMS TO CONSIDER

Business owners and HR managers should be communicating with counsel to ensure they have a plan of action for compliance with the requirements of the FTC ban on non-competes, scheduled to be effective on Sept 4^th, 2024. Below is a list of action items to consider as you prepare for compliance with the FTC Non-Compete Rule.

Background

The FTC ban on non-competes is set to be effective on Sept 4^th, 2024. There are several legal challenges that may impact the FTC ban on non-competes, but only one of those legal challenges has a better than 50/50 chance to impact the Sept 4^th effective date, the Ryan Case in Texas. However, the Ryan Court previously communicated that it does not plan on ruling on the case until the end of August, dangerously close to the Sept 4th effective date of the FTC new rule. There will be little to no time for those of you with workers with non-competes to put the wheels in motion to comply with the New Rule should the Ryan Court not rule as planned before Sept 4th. And there is always the possibility the Ryan Court does not issue a nationwide injunction as part of its final ruling. There are limited exceptions to the new rule, but preliminary indications are that a substantial majority of non-competes will no longer be enforceable. The FTC estimates that up to 30 million people, or one in five American workers, currently subject to a non-compete, will be free to leave their current position on Sept 4^th and join a competitor or start a competing business. The impact on employers and their workers will be substantial if the Ryan Court does not issue a nationwide injunction before the Sept 4^th effective date.

Action Items to Consider

1. Identify current and former workers who have agreements that will be banned by the FTC on Sept 4^th, i.e. non-compete agreements and agreements that include non-compete clauses.
   • Most non-competes entered into with workers prior to Sept 4^th, 2024, will be banned under the FTC’s new rule on Sept 4^th.
   • Certain “senior executives” who meet the applicable definition provided by the FTC may be exempt from the FTC ban on non-competes.
2. Create an appropriate notice for all current and former workers affected by the FTC ban on non-competes. The FTC published a model notice which may be helpful. Keep in mind the notice must be provided to affected workers by no later than Sept 4^th, 2024.
3. If you currently have contract forms you use that include non-compete clauses, you will want to work with counsel to create a second set of forms, which includes the removal of the banned non-compete clauses. This will enable you to be prepared to present the updated forms to new workers on and after Sept 4^th, should the rule become effective on Sept 4^th.
   • As of Sept 4^th, 2024, it will be unlawful to enter into a new non-compete with workers (employees or independent contractors).
4. Work with counsel to review existing contract forms to bolster, where applicable, current language in the agreement forms related to non-disclosure of confidential and proprietary information, trade secrets and similar language to ensure your interests are protected as much as possible on a moving forward basis.

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