Non-Compete Agreement Ban: What It Means for Employers

Updated September 2024

In a groundbreaking move by the federal government, regulation was finalized aiming to outlaw non-competition agreements for a wide spectrum of employers and workers.

A federal judge in Texas blocked the rule, meaning that the ban will not be enforced or take effect nationwide on Sept. 4 as intended. However, the Federal Trade Commission’s (FTC) still has the ability to address noncompete agreements through “case-by-case” enforcement actions. Additionally, the FTC is considering an appeal of the court’s decision, so this matter may evolve in the coming months.

While the FTC’s noncompete ban is now on hold for employers, existing Hawaii law continues to restrict the use of non-competes for employees of technology businesses. For others, non-competes may only be used if “reasonable” and “ancillary to a legitimate purpose.”

Key Points from the proposed FTC Rule

The regulation by the FTC that was proposed on April 23, 2024, addressed three pivotal aspects:

1. Businesses would no longer be allowed to enter into non-compete clauses with workers (whether full-time or part-time, including employees, independent contractors, interns, externs, volunteers, apprentices, and others).
2. Existing non-compete agreements could no longer be enforced, except for those that cover certain senior executives.
3. Explicit notice would need to be provided to both current and former workers regarding the withdrawal of their non-compete agreements.

Understanding Non-Compete Agreements

The regulation defined “non-compete agreements” as any employment term or condition that forbids, penalizes, or obstructs a worker from seeking or accepting employment with another business or launching their own venture.

While the FTC’s regulation didn’t outright prohibit other protective measures for employers, such as customer non-solicitation agreements or confidentiality clauses, it stipulated that their validity hinges on not impeding job opportunities.

Identification of Senior Executives

In the FTC rule, “senior executives” were defined as employees earning over $151,164 annually and holding policy-making positions. Existing non-compete agreements with these high-level employees remained permissible for enforcement. However, it’s noteworthy that the FTC estimated the proportion of “senior executives” among all workers to be less than 0.75%.

Notice Requirements

In the proposed rule, employers would be required to provide notice to workers, clarifying the withdrawal of their non-compete clauses and the non-enforceability of such agreements unless they pertain to senior executives. Notice guidelines included:

• Clear and conspicuous notice identification.
• Delivery in digital or paper format.
• Exemption for workers lacking contact information such as street address, email address or mobile phone number.
• Provision of notice to both current and former workers potentially affected by active non-compete clauses.

The regulation provided model notice language and a safe harbor for compliance, although deviation from the model notice could affect the extent of legal protections.

We know how difficult it can be to maintain compliance and keep up with ever-changing human resources laws and regulations. That’s where our team of HR experts can help. We monitor federal and state updates to the laws and notify affected employers with the necessary information to keep their businesses compliant. To learn more about how we can help your business, contact us.