Update on the FTC's Final Rule Regarding Noncompete Agreements - What You Need To Do Now To Be Prepared

The Federal Trade Commission’s (“FTC”) final rule prohibiting most employers from enforcing or entering into noncompete agreements is scheduled to take effect on September 4, 2024. Under this rule, employers are required to provide “clear and conspicuous notice” before the effective date to all workers who may be subject to a noncompete agreement that their noncompete is no longer enforceable. Such notice would need to be provided to all current employees subject to a noncompete agreement and any former employees still within the timeframe of their noncompete agreement. 

 On July 3, 2024, a Texas federal judge entered a preliminary injunction postponing the effective date of the FTC final rule for the parties involved in the case, but not for other employers. Judge Ada E. Brown found the plaintiffs, including the U.S. Chamber of Commerce, are likely to succeed on their arguments that: (1) the FTC lacks authority to create substantive rules in the manner it did; and (2) the rule is arbitrary and capricious. While the preliminary injunction only applies to the parties involved in the case, Judge Brown said that the court would rule on the merits of the final rule by August 30, 2024. Another case is pending in federal court in Pennsylvania and the judge is expected to rule on a similar injunction this month. 

In light of the ongoing litigation, Bradley & Riley recommends that employers: 

• Determine if they are subject to the final rule. For example, banks, credit unions, and non-profit organizations are generally exempt from FTC regulation, although the rule could be enforced by other regulating bodies.

• Review and evaluate current restrictive covenants to determine if they may be considered a noncompete agreement under the FTC final rule. 

• Review and implement reasonable non-solicitation and confidentiality agreements to ensure that company secrets remain protected.

• Consider having Senior Executives (as defined by the final rule) execute noncompete agreements before the effective date. Only noncompete agreements with Senior Executives that are executed before the effective date will be enforceable if the FTC final rule takes effect. 

If you have any questions about the above or require guidance on the FTC final rule, please reach out to the firm’s Labor & Employment team at 319-363-0101 or by visiting www.Bradleyriley.com.