The Federal Trade Commission (FTC) – empowered to protect the public from deceptive or unfair business practices – has issued a nationwide rule prohibiting employer noncompete agreements (Rule).

The Rule outlaws any agreement prohibiting employees, senior executives included, from competing with their employers as unfair competition.  Existing noncompete agreements with senior executives will remain enforceable. Any signed by other workers will not.  “Senior executives,” less than one percent of workers, are company policy makers earning at least $151,164.

The FTC directs employers to use other methods, such as nondisclosure agreements and  trade secret laws, to protect their proprietary information (e.g., client/customer/patient lists).

The Rule will be effective September 4, 2024. By that date, employers must notify non-senior executive workers their noncompetes are no longer valid.  The FTC website will provide model notification language. California required employers to provide such notices in February 2024.  See What’s New In 2024: Sacramento Love Letter: Mandatory Non-Compete Notices Due February 14, 2024 (February 8, 2024)

Like California law, the Rule does not prohibit a noncompete with someone selling all or a portion of a business.

While already under similar restrictions, California employers should note how differences in the Rule’s provisions may restrain them further.

Take-Aways:

Employers nationwide should prepare for the demise of noncompetes and the required notices to employees. They should also explore alternative protections for their confidential information, such as employee agreements for secure handling and non-disclosure of trade secrets.

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

See also:

• Handbook Helper Episode 7: Mum’s The Word: Employee Confidentiality Policy (July 29, 2022)
• Competition Free-for-All: Most Non-Competes Are Unenforceable in California (July 23, 2021)
• The Annals of Intellectual Property Number 2: What is a Trade Secret? (February 18, 2015)

Helena Kobrin
May 17, 2024