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Federal Trade Commission Ruling Likely To Impact Non-Compete Agreements … What You Need To Know.

On April 23, 2024, the Federal Trade Commission (the “Commission”) issued a “Final Rule” banning employers from entering new non-compete agreements, and stopping employers from enforcing any non-compete agreements that are currently in place.  The Final Rule applies to non-compete agreements between employers and all employees, but there is an exception for those employees who are currently in senior management positions, and currently bound by a non-compete.

To be a senior manager, an employee must have earned at least $151,164.00 in 2023, and be in a policy-making position. Determining what a “policy making” position is depends entirely on the specific roles and duties of the employee- it has less to do with the employee’s title and more to do with their role in the organization’s operation.  In virtually every circumstance, careful analysis is required to determine if, regardless of their title, an employee has the power and ability to make policies within their organization. Where one person may be considered a senior manager at one company, another individual with the same title at another company may not be considered a senior manager.

In addition, the Final Rule does not apply to non-competes entered as the result of the sale of a business.  The Final Rule also does not impact lawsuits related to non-competes if the suit was filed prior to April 23. Since the Final Rule has not yet become law, and what it means for a lawsuit to be “related to” a non-compete is still uncertain.

Non-disclosure agreements (“NDAs”), non-solicitation agreements, and other similar agreements are still enforceable. However, the Commission also noted that NDAs and other agreements that are overly-restrictive or broad will not be allowed. Creating a new document that has a different title, but the same effect, as a non-compete, is also not allowed.

What should I do right now?

• Review existing agreements with an attorney to assess the extent to which these agreements would be deemed “non-competes” under the Final Rule, and discuss changes to protect trade secrets and other confidential business information.
• Consider what to do with senior executives who currently are and are not subject to non-compete agreements.

Will the Final Rule become law?

While the Final Rule is scheduled to go into effect this August, the U.S. Chamber of Commerce (“Chamber”) announced that it would sue the Commission upon the publication of the Final Rule and alleged that the Commission did not have the authority to issue the Final Rule. Though a suit is pending, it is a good idea to review all current documents to make sure they will be compliant once the Final Rule is, in fact, final.