The Federal Trade Commission’s much-anticipated final rule prohibiting all non-compete agreements for all employees at all levels, with only extremely limited exceptions, arrived in April — 15 months and 26,000+ public comments after being first proposed. With legal challenges already underway, the implications of, as well as exceptions to, this final rule are a classic “hope for the best, prepare for the worst” scenario.
State limitations on non-competes
The FTC rule would preempt state laws only where there is a conflict.
- Outright bans.
- Income or other compensation-based thresholds.
- Not allowed for certain medical professionals.
Pending challenges
- Lawsuits challenging the rule are pending in the U.S. district courts for the Northern District of Texas and the Eastern District of Pennsylvania.
- The impact of these lawsuits is limited in scope, but the suits have set the stage for a possible nationwide injunction.
Key employer takeaways
Don’t panic!
- The FTC’s final rule is not yet effective and the legal challenges to it are significant.
Hope for the best and prepare for the worst
- Do your senior executives meet the definition for an exception from the ban?
- Do your agreements “function” to prevent or penalize a worker from taking another job?
- Who will need to receive notice?
As always . . .
- Draft narrowly to protect legitimate business interests, such as trade secrets, confidential information or customer goodwill.
- Draft for severability.
- Avoid non-competes for lower-level workers absent legitimate reasons to do so.