Kunzler Bean & AdamsonEmployment Law / Law UpdatesEssential Steps to Prepare for the FTC’s Non-compete Ban
(Effective September 4, 2024)
The Federal Trade Commission’s (“FTC”) new rule prohibiting non-compete provisions will officially take effect on September 4, 2024. Our firm previously sent out an update regarding this rule.
Despite several legal challenges, courts have not yet enjoined the implementation of the FTC’s new rule. As such, employers should take steps to ensure that they are in compliance with the new rule before the rule’s effective date on September 4. Specifically, employers should review and revise all employee agreements and policies to ensure that they do not include any prohibited non-compete provisions. In addition, employers with existing non-compete provisions with current and former employees should take steps to comply with the FTC’s notice requirements by notifying all such employees that the existing non-compete provisions are void.
Review and Revise Employee Agreements and Policies
Employers must ensure that all new employee agreements and policies are free from non-compete provisions. In revising their agreements, employers should be aware that the new rule does not prohibit non-solicitation provisions that prohibit employees from soliciting the employer’s customers and employees. As such, if employers do not have existing non-solicitation provisions, they should consider replacing any non-compete provisions with a non-solicitation provision. However, such provisions must not be so restrictive that they effectively prevent employees from “seeking or accepting” other employment.
Notify Current and Former Employees
Employers must notify all current and former employees that any non-compete provision previously entered into is now void and cannot be enforced against them. Each notice must be sent before September 4 and must meet the following requirements:
• The notice must be clear and conspicuous.
• The notice must identify the person who entered into the non-compete clause with the worker (e.g., the employer).
• The notice must be delivered by hand, mailed to the worker’s last known personal street address, emailed to an address belonging to the worker (including their current work or last known personal email address), or sent by text message to a mobile telephone number belonging to the worker.
Exception for Senior Executives
Employers are not required to deliver a notice to employees who are, or were, a “senior executive.” To qualify under this exception, the senior executive must meet two criteria: (1) they must be in a policy-making position, and (2) they must earn at least $151,164 annually.
Conclusion
As the deadline approaches, it is crucial that employers take these steps to ensure compliance with the FTC’s new rule. Failure to act promptly could result in legal challenges and penalties. If you have any questions about the new rule, including revising your agreements or meeting the notice requirements, please contact us.
The Federal Trade Commission’s (“FTC”) new rule prohibiting non-compete provisions will officially take effect on September 4, 2024. Our firm previously sent out an update regarding this rule.
Despite several legal challenges, courts have not yet enjoined the implementation of the FTC’s new rule. As such, employers should take steps to ensure that they are in compliance with the new rule before the rule’s effective date on September 4. Specifically, employers should review and revise all employee agreements and policies to ensure that they do not include any prohibited non-compete provisions. In addition, employers with existing non-compete provisions with current and former employees should take steps to comply with the FTC’s notice requirements by notifying all such employees that the existing non-compete provisions are void.
Review and Revise Employee Agreements and Policies
Employers must ensure that all new employee agreements and policies are free from non-compete provisions. In revising their agreements, employers should be aware that the new rule does not prohibit non-solicitation provisions that prohibit employees from soliciting the employer’s customers and employees. As such, if employers do not have existing non-solicitation provisions, they should consider replacing any non-compete provisions with a non-solicitation provision. However, such provisions must not be so restrictive that they effectively prevent employees from “seeking or accepting” other employment.
Notify Current and Former Employees
Employers must notify all current and former employees that any non-compete provision previously entered into is now void and cannot be enforced against them. Each notice must be sent before September 4 and must meet the following requirements:
• The notice must be clear and conspicuous.
• The notice must identify the person who entered into the non-compete clause with the worker (e.g., the employer).
• The notice must be delivered by hand, mailed to the worker’s last known personal street address, emailed to an address belonging to the worker (including their current work or last known personal email address), or sent by text message to a mobile telephone number belonging to the worker.
Exception for Senior Executives
Employers are not required to deliver a notice to employees who are, or were, a “senior executive.” To qualify under this exception, the senior executive must meet two criteria: (1) they must be in a policy-making position, and (2) they must earn at least $151,164 annually.
Conclusion
As the deadline approaches, it is crucial that employers take these steps to ensure compliance with the FTC’s new rule. Failure to act promptly could result in legal challenges and penalties. If you have any questions about the new rule, including revising your agreements or meeting the notice requirements, please contact us.