Page 52 - BusinessWest May 13, 2024
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Challenging the Rule
Non-compete Agreements May Be in Jeopardy
On April 23, the Federal Trade Commission (FTC) issued a final rule banning non-competition agreements for all employees. While this action by the FTC was expected, there were many unanswered
questions about the final impact of the non-compete rule in regard to exist- ing non-compete agreements and its scope as applied to future non-com- pete agreements. These questions were answered under the final rule as promulgated.
Most Non-competition Agreements Banned
The FTC’s final rule banning all non-competition agreements is effec- tive 120 days after its publication in the Federal Register. As of the effective date, all non-competition agreements are banned, with close to no excep- tions, except for franchisor/franchisee relationships and for sales of a busi- ness between buyer and seller.
Independent contractors are also included under the umbrella of employees that would no longer be subject to non-competition agreements under the final rule. This would effectively mean that many employees in industries such as film, finance, and other professional services now have the right to switch between employers, which the FTC states “will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to the market.”
However, and of note, the FTC does not have jurisdiction over nonprofit employers, so non-competition agreements are enforceable in this regard despite the FTC’s final rule.
“The U.S. Chamber of Commerce has already vowed to block the rule, calling it ‘an unlawful power grab’ and arguing that the authority to govern non-competition agree- ments should be left to the states.”
Final Rule Retroactive as to Lower-wage Workers
In addition to prohibiting all non-competition agreements after the effec- tive date of the final rule with limited exceptions, the FTC’s rule is retroac- tive, prohibiting certain non-competition agreements before the effective date of the rule as well.
Existing non-competition agreements can remain in effect as to senior executives, which are defined in the rule as employees in ‘policy-making positions’ making at least $151,164 per year. Existing non-competition agreements with employees who do not meet this definition are no longer enforceable per the final rule.
Despite the final rule, employers do not need to modify existing non-
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     52 MAY 13, 2024
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