In late April the FTC issued a final rule to promote competition that will ban non-competes on a federal scale. It was a narrow vote after receiving over 26,000 public comments on the topic. The FTC estimates that over 30 million American workers (or one in five) are bound by non-competes currently, preventing them from joining competing businesses or launching one of their own, but that is set to change this September as non-competes become illegal nationwide.
Non-compete clauses and the drama surrounding them are not a new concept- the first believed non-compete lawsuit was in 1414 when an apprentice named John Dyer promised to refrain from working in his trade for six months (“Dyers Case”). When the judge in the case refused to enforce the non-compete it set off a domino effect of non-compete confusion for the next 600 plus years. Over the years more and more states have banned the use of these restrictive clauses and more and more employees have pushed for a nationwide ban. The final rule in 2024 is set to rock the boat one more time, and likely without its fair share of chaos.
The big question we keep getting is “Will this stick?” And the answer here is “Maybe.” The biggest hurdle right now is the US Chamber of Commerce who has announced it will sue the FTC to block the rule, calling it “unnecessary, unlawful and a blatant power grab.” So time will tell, but it is never too early to prepare for what happens if/when it goes into effect.
If your company has non-compete clauses you should gear up. On or before the effective date employers must provide employees with these clauses a notice that these clauses will not (and cannot) be enforced. This must be in writing and delivered to all impacted employees by hand, mail, email, or text message and proof of delivery should be documented and filed. Not delivering this notice and/or trying to enforce a non-compete after the effective date will result in penalties or injunctive relief. In addition, employers should revise their current onboarding documents, handbooks, and training programs to remove any post-employment restrictions (such as non-solicitation or non-disclosure provisions) that could be deemed a non-compete clause.
We will be monitoring this closely and have already prepared and delivered some notices for employers who have requested these to be sent to employees- let us know if we can help you too!