The Federal Trade Commission (FTC) issued a final rule yesterday that effectively eliminates the “vast majority” of noncompete agreements as of the rule’s expected late-August effective date. Adoption of the rule comes one year after the FTC’s proposed rule was released. One notable exception allows existing noncompetes covering senior executives to remain enforceable. The FTC defines “senior executive” as workers earning more than $151,164 annually who are in a policy-making position. Once the rule is adopted, employers cannot enter into new noncompetes, including newly hired senior executives.
Rather than requiring employers to legally modify current noncompete clauses or agreements as suggested in the proposed rule, the final rule requires employers to notify those bound by an existing noncompete that it will not be enforced going forward. The FTC provides employers with a model notice to aid in the communication.
The FTC recognizes employers have a right to protect trade secrets and other intellectual property rights using other enforcement mechanisms such as trade secrets and patent law and non-disclosure agreements, so long as the language is not so overly broad to prevent a worker from seeking other job opportunities.
The rules defines a “noncompete clause” as one that blocks workers from working for a competing employer or starting a competing business within a certain geographic area and period of time after the worker’s employment ends. At this time, employers aren’t required to rescind existing noncompetes and legal challenges are likely. Meanwhile, employers should begin evaluating the rule’s impact in the event the FTC efforts are successful.
