Can We or Can’t We Have Non-Compete Agreements? The FTC’s Effort to Ban Non-Compete Agreements
By Michael Santo, COSHRM Legislative Director and Managing Attorney at Bechtel & Santo
The answer to the above question is, frankly, what day is it? That is, in April 2024, the Federal Trade Commission announced its final Non-Compete Clause Rule. The Final Rule provides that it is an unfair method of competition for persons to, among other things, enter into non-compete clauses with workers on or after the final rule’s effective date, which is set for early September 2024.
The Rule also identifies that this prohibition extends beyond just those agreements labeled as a “non-compete agreement.”In essence, it covers any condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from either seeking or accepting work in the United States with a different company or operating a business in the United States. The new rule also covers non-solicitation, non-disclosure restrictions, and training repayment agreements, as well as forfeiture for competition agreements. In short, when/if the FTC rule becomes effective, it will significantly restrict an organization’s ability to enter into noncompete agreements with employees.
Perhaps not surprisingly, about four seconds after the FTC’s announcement on the new rule (well, within 24 hours; but who is counting?), a lawsuit was filed in federal court in the Eastern District of Texas. See Ryan, LLC v. FTC. In that lawsuit, the plaintiffs sued the FTC claiming that the FTC did not have authority to make a rule barring non-compete agreements. The plaintiffs also requested the Court to issue an order preventing the FTC’s rule from becoming effective while the lawsuit was going on. In response, the Judge agreed to issue an order to keep the rule from becoming effective. But only with respect to the Ryan plaintiffs. This ruling means that if your company is not one of the Ryan plaintiffs, the rule becomes effective for your company in September 2024. And if you have to ask if your company is one of the plaintiffs, you’re probably not. But don’t despair because the Judge also announced that the Court would issue a decision on the entire lawsuit prior to the September effective date. So, employers will know the answer to the question regarding the FTC’s efforts to ban non-compete agreements prior to the rule becoming effective. Stay tuned for what is certain to be an interesting decision.
Questions? Email info@coshrm.org
