On April 23, 2024, the FTC published its long-awaited rule against non-compete agreements, prohibiting all future non-compete agreements and invalidating all current non-compete agreements except those of “senior executives” who earn more than $151,164 a year and have the final say on major company policy matters.
The rule only covers workers and work arrangements within the FTC’s jurisdiction, and therefore excludes such entities as banks and many non-profits (although some non-profits are still at risk of inclusion).
It also excludes non-compete agreements that are part of arms-length sales and transfers of existing businesses.
A non-compete agreement is basically any term or condition of employment that prevents a worker from going to work for a potential competitor if her current employment ends. The “term or condition of employment” may be part of a verbal agreement, written agreement, or just part of a company policy.
The rule will be effective 120 days from publication, although the U.S. Chamber of Commerce and others have already asked the courts for an injunction and a declaration that the rule is invalid and beyond the FTC’s authority to impose.
After the rule’s effective date (and depending upon litigation outcomes), employers are required to notify employees that any non-compete agreements or policies are nullified.
The FTC has limited enforcement powers, and if the non-compete rule survives legal challenges the FTC’s path to enforcement will likely only include “cease and desist” orders and injunctions for companies that fail to abide by the rule. However, the types of relief that may be sought for rule violation are beyond the scope of this blog and, at this time, even the inquiry is premature.
Employers would be wise to review policies and employment contracts and talk with legal counsel to see what vulnerabilities and obligations they might have should the rule pass legal muster. Then a plan can be developed so the employers are not caught off-guard if they must comply.
Litigation challenging the FTC’s rule-making authority in the non-compete arena may share some similarities with litigation challenging the NLRB’s constitutionality that SpaceX and Amazon, among others, have recently filed in federal court.
Large employers, concerned with what they perceive as federal administrative overreach, may view an audience with a conservative Supreme Court as an opportunity to reign in aggressive rule-making and limit agency power. We can expect a lot of action in the federal courts as NLRB General Counsel Abruzzo and other agency leaders pursue agendas through rule-making that employers believe must instead be addressed by Congress.
Make sure your leadership teams are trained and up-to-date on labor and employee relations topics like these. By far, the majority of the ULPs filed with the NLRB are the result of actions by first-line supervisors and managers. Contact MARC associates (see the Services tab) and see how MARC can help.
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