The FTC Ban on Non-Competes
Final Rule Requires Notice to Workers of Unenforceability by September 4, 2024
The Federal Trade Commission proposed a sweeping rule last year, outlawing most non-competition agreements nationwide. The rule drew widespread commentary and, as a result, the FTC modified the proposed rule and issued a final rule in April 2024 that goes into effect September 4, 2024.
The final rule retains most of the prohibitions on non-competes of the proposed rule, with some important exceptions, such as non-competes entered into by the seller of a business in a “bona-fide sale.” However, in general, non-competition agreements affecting the vast majority of workers are unenforceable from and after the effective date of the rule. The final rule provides that, with respect to a worker other than a senior executive, it is an unfair method of competition for a person to enter into, or attempt to enter into, a non-compete clause; to enforce or attempt to enforce a non-compete clause; or to represent that the worker is subject to a non-compete clause.
This unenforceability also applies to non-competes entered into prior to the effective date of the rule, other than those with “senior executives,” which is strictly defined. Consequently, the rule retroactively outlaws all existing non-competes except for this narrow exception.
Moreover, employers must provide workers with existing non-competes notice that the agreements are no longer enforceable. To facilitate compliance and minimize burden, the final rule includes model language that satisfies this notice requirement. The Commission originally proposed to require employers to rescind (i.e., legally modify) existing non-competes, and provide notice to inform workers that they are no longer bound by existing non-competes. However, based on comments, the Commission decided against adopting a rescission requirement in the final rule. Rather than require employers to legally modify existing non-competes, the final rule prohibits employers from enforcing existing non-competes with workers other than senior executives after the compliance date.
Under the rule, the person who entered into the non-compete must provide clear and conspicuous notice to the worker by the effective date that the worker’s non-compete clause is no longer in effect and will not, and cannot, be legally, enforced against the worker. The notice must identify the person who entered into the non-compete with the worker and must be on paper delivered by hand to the worker, or by mail at the worker’s last known personal street address, or by email at an email address belonging to the worker, including the worker’s current work email address or last known personal email address, or by text message at a mobile telephone number belonging to the worker. The rule exempts employers from the notice requirement where the employer has no record of a street address, email address, or mobile telephone number for the worker. The employer has the option to provide notices in languages other than English.
The final rule provides safe harbor model language that satisfies the notice requirement. The model language in the final rule uses the phrase “[EMPLOYER NAME] will not enforce any non-compete clause against you.” Because this language does not identify the recipient as having a non-compete, the employer does not need to determine which of its workers have non-competes; instead, it can simply send a mass communication such as a mass email to current and former workers.
Just hours after the FTC issued the final rule the rule was challenged in court. The following day, the Chamber of Commerce filed a lawsuit in Texas federal court seeking declaratory and injunctive relief. Given these pending suits and others that may follow, employers are advised to wait until closer to the September 4 deadline before sending the required notices to workers.
