On April 23, 2024, the Federal Trade Commission (FTC) finalized its non-compete rule that virtually bans non-compete agreements and supersedes all state laws relating to non-compete agreements. This rule is set to take effect on September 4th. However, there are legal challenges that make it unknown whether the rule will take effect in September.
A recent federal lawsuit, Decision in ATS Tree Services, denied the plaintiff’s motion for a nationwide injunction of FTC’s non-compete rule, stating the rule was not unlawful. However, in another recent federal lawsuit, Ryan, LLC v. The Federal Trade Commission, the Court temporarily stopped the non-compete ban from going into effect but only for the specific employers involved in the lawsuit. The judge did signal that a final decision is planned to be issued by August 30, 2024. The final decision could include a nationwide junction that would ban the non-compete rule from taking effect. However, because August 30th is just days away from the effective date, employers need to be prepared to comply with the FTC non-compete rule.
Specifically, the FTC’s non-compete rule mandates the following:
- Employers are prohibited from entering into new non-competes with workers on or after the effective date.
- Employers are prohibited from enforcing existing non-competes with workers other than senior executives.
- The final rule defines the term “senior executive” to refer to workers earning more than $151,164 who are in a policy-making position. Policy-making position means a “business entity’s president, chief executive officer or the equivalent, any other officer of a business entity who has policy-making authority, or any other natural person who has policy-making authority for the business entity.”
- Employers must provide both current and former employees with a clear and conspicuous notice to the worker by the effective date that the worker’s non-compete clause is no longer in effect and will not be, and cannot be enforced. Employers may provide notice on paper, by mail, email, or text message; and employers are exempt from the notice requirement where the employer has no record of a street address, email address, or mobile telephone number for the worker. The FTC provides safe harbor model language in a document linked here.
In preparing, employers should examine all active non-compete agreements to see if there is a “senior executive” exemption. If the exemption does not apply, employers should prepare to send out notices. It is important to note that this rule is more restrictive than Oregon’s non-compete laws. If the rule takes effect on September 4th, Oregon and Washington employers will need to follow the FTC rule as it will supersede state laws.
Members of Cascade can click here for a model notice to affected employees. The model notice takes into account that the FTC’s Non-Compete law may not go into effect.
Cascade is closely monitoring this and will keep you alerted as more information becomes available.