Understanding the FTC’s New Non-Compete Rule: What Business Owners Need to Know

**UPDATE** We want to bring your attention to a significant update regarding the FTC’s proposed Non-Compete Rule.On August 20th, the United States District Court for the Northern District of Texas issued a nationwide injunction prohibiting the FTC from enforcing its Non-Compete Rule, which was set to take effect on September 4th.What This Means for Employers:

• You are no longer required to comply with the proposed rule.

• There’s no need to send the notices to employees that would have been mandated by September 4th under the new rule.

At EQUES® Law Group, we are closely monitoring the situation and will keep you informed of any further developments, including whether the FTC decides to appeal this decision.

We are committed to keeping you updated on the latest legal changes that impact your business. Should you have any questions or need further guidance, please don't hesitate to reach out to our team.

In April 2024, the Federal Trade Commission (FTC) introduced significant changes to the regulations surrounding non-compete clauses, which become effective

September 4 2024

, if not blocked by a legal challenge. These new rules strongly limit an employer’s ability to enter a non-compete with an employee. As a business owner, it's crucial to understand the implications of these changes to ensure compliance and to adapt your business strategies accordingly.

What are Non-Compete Clauses?

Non-compete clauses are contractual agreements between employers and employees that restrict employees from working for competitors or starting a competing business for a specified period after leaving the company. These clauses have traditionally been used to protect trade secrets and confidential information and to prevent unfair competition.

Key Changes in the New FTC Rule

1. Ban on Non-Compete Clauses: The new rule broadly prohibits employers from entering into non-compete agreements with their employees and independent contractors. This applies across all industries and positions, aiming to enhance worker mobility and increase competition.

2. Rescinding Existing Non-Compete Agreements: Employers are required to rescind existing non-compete agreements and inform employees that such clauses no longer bind them. This step is essential to ensure that all employees benefit from the new regulations regardless of tenure.

3. Limited Exceptions: The rule provides only limited exceptions for certain circumstances where non-compete clauses may still be enforceable. These exceptions are narrowly defined, such as situations involving the sale of a business or franchisor/franchisees. Some existing non-compete agreements for senior executives would remain in force, but new agreements for senior executives would not be enforceable after the final rule's effective date.  The non-compete restriction will not apply to those who work only outside the U.S. or start a business outside the U.S.

Implications for Business Owners

1. Increased Employee Mobility: The new rule is expected to increase employee mobility by allowing workers to seek employment with competitors or start their own businesses without the fear of legal repercussions.

2. Review and Revise Contracts: Business owners must review and revise their employment contracts to ensure compliance with the new rule. This includes removing non-compete clauses and agreements and considering alternative ways to protect business interests, such as non-disclosure agreements (NDAs) and non-solicitation agreements.

3. Notices. Employers must provide “clear and conspicuous” notice by the effective date to employees bound to an existing non-compete agreement who are not senior executives that the non-compete agreement will not be, and cannot legally be, enforced against them in the future. The notice can be delivered via various methods, including (1) by hand, (2) by mail at the worker’s last known personal street address, (3) 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 (4) by text message at a mobile telephone number belonging to the employee. Employers may be exempt from the notice requirement with respect to the specific worker that they do not have any record of a street address, email address, or mobile telephone number. The FTC has included model language in the final rule that employers can use to communicate to workers, which is available on their website, here.

4. Strategic Adjustments: Companies will need to adjust their strategies to maintain a competitive edge. This might involve enhancing employee retention programs, investing in employee training and development, and fostering a positive workplace culture to reduce turnover.

5. Legal Compliance and Guidance: It’s essential to seek legal guidance to navigate the new regulations and ensure full compliance. The FTC’s rule is comprehensive, and understanding the nuances will help prevent legal challenges and potential penalties.

Business owners must take proactive steps to comply with the new regulations, protect their interests through alternative measures, and adapt their strategies to thrive in a more competitive environment. At EQUES® Law Group, our experienced attorneys are here to help you navigate these changes and ensure your business remains compliant and competitive.

Remember, employers who have entered into non-competes with employees need to send the employee a notice that the non-compete is not effective, by the effective date of the new Rule, which is September 1, 2024.

For more detailed information on the FTC’s new rule and how it impacts your business, feel free to reach out to EQUES® Law Group. Our team is dedicated to providing comprehensive legal support to help you adapt to these regulatory changes effectively. By: Moriah HintonBusiness and Labor/Employment AttorneyEQUES® Law Group