Last updated on August 23rd, 2024

The FTC’s Noncompete Ban Is NOT Moving Forward September 4

***** UPDATE TO THIS ARTICLE:  Earlier this week, a Texas federal court set aside the Federal Trade Commission’s (FTC’s) proposed ban on noncompete agreements, scheduled to take effect nationwide in just over two weeks. Thanks to the court’s actions, the ban will NOT take effect on September 4. Employers nationwide can maintain noncompete agreements as per state laws.

In 2023, the FTC proposed the ban and this past April a Final Rule was issued enforcing the ban effective September 4. A number of legal challenges were filed and one in particular – Ryan LLC v. Federal Trade Commission in the Northern District of Texas – left room for a nationwide injunction on the ban. 

Tuesday, Judge Ada Brown struck down the nationwide ban for two reasons: the ban exceeds the FTC’s statutory authority and violates the Administrative Procedure Act.

While there may be appeals in the future, employers can continue to protect key relationships and confidential information with noncompete agreements. Just be sure they comply with applicable state laws and focus on critical employees, as the FTC has indicated it may pursue targeted investigations.

If you have any questions about noncompete agreements or any other aspect of employment, professionals at RBT CPAs’ affiliate – Visions Human Resource Services – are available to help. Email Jgiannetta@VisionsHR.com or call 845-567-3978.

Please note: Visions Human Resource Services is an advisory firm, not a law firm, and the information above should not be construed as legal advice. Should you need legal advice, it is always in your best interest to consult with your legal counsel.

On April 23, the FTC issued a final rule banning noncompete agreements nationwide.

The final rule is effective September 4, 2024. While a number of lawsuits are underway challenging the rule (including one brought forward by the U.S. Chamber of Commerce), businesses – especially manufacturers – may want to consider the implications and what to do next.

Generally, noncompetes prohibit, penalize, or prevent workers from seeking or accepting work with another employer or opening their own business. The FTC’s final rule will make noncompetes unenforceable for the majority of workers, which include employees, independent contractors, interns, volunteers, apprentices, and sole proprietors.

Under the final rule, existing noncompete agreements for senior executives – defined as those in policy-making positions earning more than $151,164 – can remain in force, but no new ones are allowed after September 4. For all others, employers will need to notify workers covered by a noncompete agreement that the agreement will not be enforced. Notification must be in writing and delivered via email, text, or mail at the worker’s last known address (delivery by hand is also allowed). There’s sample language for the notice on the FTC noncompete rule webpage (scroll down to “Model Notices”).

There appear to be different schools of thought regarding how much effort employers should put into compliance right now, as we don’t know what may happen as a result of the many lawsuits challenging the rule. In light of the intellectual property, business strategy, industrial processes, and sales information that are fundamental to a manufacturing business’ competitive advantage and success, business leaders may want to consult legal counsel and engage Human Resources to begin defining a path forward sooner rather than later.

Key considerations include:

• Do your contracts for employees and contractors include a noncompete clause? What about other provisions that help protect proprietary information? How will contracts need to change?
• Do you currently have non-disclosure agreements (NDAs), non-solicitation agreements, intellectual property agreements, and confidentiality policies? Do you need to enhance or strengthen them?
• Do you need to add, delete, or update employment policies and communicate changes to employees? Will new employee orientations and onboarding need to change as well?
• Do you need a proactive retention strategy for key employees who may be enticed by competitors to jump ship? Can updated professional development, career planning, and rewards programs help keep potential poachers at bay?
• Should you consider changing work processes and IT protocols to limit the number of people with access to strategy, intellectual property, sales, and other proprietary information?
• Is there a need to make IT changes to help keep important data and files from leaving with employees?

As you navigate the potential implications of the final rule and what you must do to both comply and protect your business, you can count on RBT CPAs for all of your business advisory, accounting, audit, and tax needs. What’s more, our Visions Human Resource Services affiliate professionals are available to help you with employee handbook revisions, HR policies, total rewards analysis, and more. We hope to have the opportunity to show you how we can be Remarkably Better Together.

RBT CPAs is proud to say 100% of its work is prepared in America. Our company does not offshore work, so you always know who is handling your confidential financial data.

Please note: RBT CPAs is an accounting, audit, tax, and business advisory firm – not a law firm. The content in this article is for informational purposes only and should not be construed as advice. Should you need legal advice, we strongly encourage you to contact your legal counsel.