Federal Trade Commission (FTC) Bans Noncompetes

• Called the FTC Non-Compete Clause Rule 
• Copy of text of rule 

How does the FTC have legal authority to ban non-competes?

• Section 5 of the FTC Act.
• Section 5 of the FTC Act declared that unfair methods of competition in or affecting commerce are unlawful.
• FTC has the power to
  • prevent entities subject to its jurisdiction from using such methods. Example, the FTC doesn’t have jurisdiction over nonprofit entities. Thus if you are employed by a non-profit you are still subject to non-competes in place.
  • Make rules and regulations for the purpose of carrying out the provisions of the FTC ACT

What does the rule apply to?

• Rule applies to noncompete agreements with workers on or after the rule’s effective date (120 days after the date of publication in the federal register)
• Worker
  • includes:
    • Persons who worked or worked or provides a service
    • Regardless of title or status under state or federal law
      • Includes employee, IC, external, intern, volunteer, apprentice, or sole proprietor
      • Includes indirect employment relationships (staffing companies)
  • worker does not include:
    •  franchisee (franchisee-franchisor relationship)
• Non-compete clause includes:
  • Term or condition of employment that prohibits, penalizes, or functions to prevent a worker form
    • Seeking or accepting work in the US with a different person following termination of employment or
    • Operating a business in the US following termination of employment
  • Term or condition of employment includes a contractual term or workplace policy, whether written or oral

What doesn’t the rule apply to? 

• to any cause of action related to non-compete clause which accrued prior to rule effective date;
• Existing non-competes agreements with senior executives
  • Reasoning: less likely to be subject to the kind of “acute, ongoing harms currently being suffered by other workers subject to existing non-competes”
  • Senior executive means:
    • Worker in policy making position AND
    • Received total annual compensation of at least $151,164 in preceding year
• To non-competes entered into by a person pursuant to a bona fide sale of a business entity

What are Subject Employers Required to do Before the Rule Effective Date? 

• Employers must provide workers with existing non-competes agreements notice that the non-compete agreement will not be and cannot legally be enforced against the worker
• Notice requirements
  • The notice must be clear and conscious
  • The notice must be sent by the effective date of the rule
  • The notice must identify the person who entered into the non-compete with the worker
  • The notice must be in paper form delivered in one of the following ways
    • By hand
    • By mail at the workers last known personal street address
    • Email at an email address belonging to the worker
    • Text message at a mobile telephone number belonging to the worker
• *Exception to notice requirement:
  •  if employer has no record of any of the following then does not need to provide notice

Questions on how this might affect you? We are here to help. Contact us at any time and we are happy to discuss.