An Overview
On April 23, 2024, the Federal Trade Commission issued a final rule that is expected to create over 8,500 new businesses in the United States each year, raise worker wages, lower health care costs, and boost innovation, per the FTC's news release from yesterday.
Under the FTC’s new rule, existing noncompete clauses for the vast majority of workers will no longer be enforceable after the rule’s effective date. Existing noncompete clauses for senior executives - who represent less than 0.75% of workers - can remain in force under the FTC’s final rule, but employers are banned from entering into or attempting to enforce any new noncompete clauses, even if they involve senior executives. Employers will be required to provide notice to workers other than senior executives who are bound by an existing noncompete that they will not be enforcing any noncompete clauses against them. The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions.
When Does This Become Effective?
The rule specifically references a 120-day waiting period before the change comes into effect. Furthermore, most experts anticipate that this rule could be tied up in litigation as the United States Chamber of Commerce and other anti-workers rights groups have already voiced an intent to file suit. When the rule does take effect, it is expected to be retroactive and it will specifically disallow new noncompete clauses to take effect with exception to a very small portion of employees.
What Does This Mean For Employees?
For employees and worker's rights groups, the rule is being seen as a huge win. There is little expected downside for employees because it is expanding their options and avenues to seek work. It also means that the Employee should recognize and take notes of their rights moving forward.
What Does This Mean for Employers?
Employers are expected to feel the brunt of the impact from this new rule as they will no longer be able to utilize a noncompete to prevent an employee seeking to leave the company. However, Employers should also take this as an opportunity to review their procedures and policies with regards to non-competition.
Trade secret laws and non-disclosure agreements (NDAs) both provide employers with well-established means to protect proprietary and other sensitive information. Researchers estimate that over 95% of workers with a noncompete already have an NDA.
Conclusion
It is expected to take more than six months before we see any movement on this new rule change. But once we do see the rule come into effect, business owners and employees must take notice of the new rule and their respective rights to ensure compliance with the laws of the United States and their respective state(s). Questions about how this rule change may effect you? If so, don't wait! Call Hampleman Law, LLC at (618) 422-9110 or use our website to reach out.
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