Update on the FTC's Final Rule Regarding Noncompete Agreements

As discussed in our last update, 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. To date, federal courts in Texas and Florida have granted preliminary injunctions postponing the effective date of the FTC final rule for the parties involved in those cases (but not for other employers) while finding that the plaintiffs are likely to succeed on their arguments that the FTC has exceeded its authority. A federal court in Pennsylvania, conversely, denied a preliminary injunction after finding that the final rule is probably enforceable.

As of today, however, no nation-wide injunction of the rule has been entered by any court. In light of the upcoming effective date, 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. 

• Gather a list of employees and former employees who must be provided “clear and conspicuous notice” under the FTC final rule that their noncompete is no longer enforceable.

• 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. 

Employers should note that the FTC final rule includes an exception, in Section 910(3), that provides: “[i]t is not an unfair method of competition to enforce or attempt to enforce a non-compete clause or to make representations about a non-compete clause where a person has a good-faith basis to believe that this [rule] is inapplicable.”

If you have any questions about this narrow exception, or if notice should be provided to current or former employees, please reach out to the firm’s Labor & Employment team.