UPDATE: Federal Judge Halts FTC’s Non-Compete Ban: Employers Can Breathe Easier—for Now

The Federal Trade Commission has adopted a final rule adding a prohibition on post-employment non-competes. The rule is scheduled for publication on May 7, 2024, meaning the effective date of the rule will be September 4, 2024.

Existing non-competes for senior executives, and non-competes entered into before September 4, 2024, for senior executives will remain enforceable. All non-competes for all other employees will be rendered unenforceable beginning September 4, 2024.

After September 4, 2024, it will generally be against the law for an employer to enter into a non-compete and to enforce a non-compete against a non-senior executive.

By September 4, 2024, employers need to provide notice to workers with non-competes, who are not considered senior executives, stating the non-compete clause will not and cannot be enforced against the employee.

In short, you should always work closely with legal counsel while attempting to draft, enter into, and enforce a non-compete. The following legal information, not legal advice, may be helpful to take into consideration:

How does the Federal Trade Commission define senior executive?

A senior executive is a worker earning more than $151,164 in total annual compensation in a policy making position.

Minnesota already has a law prohibiting non-competes, do I even need to worry about this change?

Yes, the Minnesota law allowed all existing non-competes to remain enforceable. The new FTC rule renders all non-competes, except those existing for senior executives, unenforceable.

Should employers enter into new non-competes with employees who do not qualify as a senior executive at this time?

Probably not, you would need to provide the employee notice the non-compete will be unenforceable on September 4, 2024.

Should employers enter into new non-competes with employees who qualify as a senior executive at this time?

If the employer finds a non-compete would bring value to the employer, absolutely, time is ticking. However, remember that you must offer an employee consideration for entering an agreement of the sort. If you are in Minnesota, unlike in Wisconsin, continued employment is not sufficient consideration.

Should employers enter into any non-competes after the new rule comes into effect?

Absolutely not, it is not allowed under the law.

Are non-competition agreements as part of a sale of business still allowed?

There is one exception under this new rule which is the sale of business exception. Minnesota has this same exception as part of its 2023 statute that bans non-competition agreements as well.

If I provide “Garden Leave” can I still have a non-competition agreement?

Yes. Garden leave is where a worker is still employed and receiving the same total annual compensation and benefits even though they may no longer technically be working for the company. The FTC has acknowledged that Garden Leave provisions are not non-competes because they are not a post-employment restriction.

Are there other ways that we can protect our business?

Yes! In both Minnesota and Wisconsin, businesses can still protect their information and relationships through reasonable non-solicitation and confidentiality/trade secret agreements.

I’ve been around the block enough to know that sometimes these rules get caught in litigation and are never implemented. Is this really something to be concerned about?

It is likely that there will be litigation over this rule. This means that it is possible that there will be a delay in implementation and, depending on who is elected to Presidency in 2024, it is possible that this rule could never come to fruition. However, now is the time to start planning as prohibitions on non-competition agreements are steadily making their way across the United States on a state and local level, and it seems apparent that it is only a matter of time.

Is there a model notice to provide to employees notifying them that their non-compete is no longer valid?

The FTC provided a model notice in their final rule:

A new rule enforced by the Federal Trade Commission makes it unlawful for us to enforce  non-compete clause. As of September 4, 2024 [EMPLOYER NAME] will not enforce any non-compete clause against you. This means that as of September 4, 2024:

• You may seek or accept a job with any company or any person – even if they compete with [EMPLOYER NAME].
• You may run your own business – even if it competes with [EMPLOYER NAME] following your employment with [EMPLOYER NAME].
• You may compete with [EMPLOYER NAME] following your employment with [EMPLOYER NAME]

The FTC’s new rule does not affect any other terms or conditions of your employment. For more information about the rule, visit https://www.federalregister.gov/. Complete an accurate translations of the notice in certain languages other than English, including Spanish, Chinese, Arabic, Vietnamese, Tagalog, and Korean are available at [insert url once available].