The dust is still settling after the U.S. Federal Trade Commission (FTC) issued its long anticipated final Rule on Tuesday, April 23 banning most non-compete agreements in the employment context. Although the effectiveness of the Rule is likely to be delayed, potentially for years, by court challenges, employers are understandably jittery about their existing non-compete agreements and other restrictive covenants.  Here with answers to some of the most commonly asked questions are Porter Wright employment attorneys Jennifer Huelskamp and Nicole Mayo. 

When will the Rule go into effect?

The final Rule will go into effect 120 days after it is published in the Federal Register. As of this writing, the Rule is scheduled for publication on May 7, 2024, making the effective date Sept. 4, 2024. However, a lawsuit has already been filed so the Rule may be tied up in litigation, and so the effective date will likely be further delayed.

What should we do with our existing non-competes?

Once the Rule is final, most non-competes will be void. The only existing non-competes that will be enforceable are those that are currently in place with Senior Executives. Under the Rule, a Senior Executive must be in a policy making position and have had an annual salary of at least $151,164 in the preceding year. Existing non-competes with any other employees will be void. No new agreements can be entered into with any employees including Senior Executives.

Is this a bad time to try to enforce existing non-competes?

Not necessarily. The Rule is not yet final, and is already being challenged in the courts. This means that any final Rule will likely be delayed. Employers should proceed cautiously but as usual until the final Rule is in effect. Also, violations of current non-competes that occur prior to the final Rule’s effective date may still proceed with enforcement in court or otherwise.

What about other types of restrictive covenants?

Other types of restrictive covenants are not explicitly banned but should be utilized with caution. Included in the Rule is a ban on a term or condition of employment that “has the effect of prohibiting the worker from seeking or accepting employment.” Theoretically, non-solicit clauses may fall into this category, so those will need to be reviewed and possibly updated to comply with the new Rule.

What else can we do now to minimize the damage if and when the Rule goes into effect?

The Rule requires that employers send a notice to employees by the effective date of the Rule explaining that the non-compete will not be and cannot legally be enforced. The notice must be specific to each worker with a non-compete agreement and include the worker’s name. Employers can begin gathering lists of employees that are currently bound by non-competes and begin the process of drafting the notices.

What should we be telling our employees?

For now, employers can tell employees that business will continue as usual and current non-compete and other restrictive covenant agreements continue to remain in force. Employers can let employees know, however, that they are closely monitoring the Rule’s effective date and any litigation or legislation that may delay or otherwise impede the effective date or the enforcement of the final Rule. Employers should keep employees apprised of any changes or updates and be sure to comply with the notice requirements discussed above.

What tools do employers still have at their disposal to safeguard their confidential and trade secret information, business relationship and other business interests?

Employers can still use certain measures to ensure the confidentiality of their confidential information, trade secrets and other business interests. These include:

• Non-disclosure agreements (NDAs);
• Non-solicitation agreements;
• Confidentiality policies;
• Training on confidential information, trade secrets and safeguarding other business interests;
• Technology measures to safeguard information; and
• Good hiring and separation policies and practices.