- August 13, 2024
- Alerts
Preparing for the FTC's Ban on Non-Competes
What is the Status of the Pending FTC Ban on Non-Compete Agreements?
Many clients are asking whether the Federal Trade Commission (FTC) ban has gone into effect and, if not, what the status is currently. As we reported previously, click HERE, the FTC enacted a nationwide ban on most non-compete agreements, subject to certain narrow exceptions, that was anticipated to take effect on September 4, 2024. Since that time, however, multiple court challenges have been filed, testing the validity of the ban.
Presently, the FTC’s ban on non-compete agreements has not taken effect. Again, the anticipated effective date is September 4, 2024, subject to the outcome of pending litigations discussed below. Accordingly, businesses and employees who already have existing non-compete agreements in place, remain subject to the terms and conditions of such agreements, subject to applicable local and state laws.
General recommendations at this time:
A further decision regarding the status of the FTC ban is expected on or before August 30, 2024. Until then, a lot of uncertainty remains about the future. Many believe that much of the current FTC ban will be invalidated by the Courts, and our Garfunkel Wild attorneys will continue to monitor the updates and provide guidance.
Legal Challenges to the FTC Ban and Next Procedural Steps
The leading case challenging the FTC ban is pending in a Texas Federal Court. In that case, Ryan, LLC v. FTC, the court stayed the September 4th effective date of the FTC ban for the plaintiffs in that case only. The plaintiffs in Ryan, LLC v. FTC sought a nationwide ban, but the Court declined to extend the injunction nationally at the preliminary stage. Despite this denial, however, the Court openly doubted the FTC’s authority to nationally ban non-compete agreements. As such, the court could possibly issue a broader injunction against the Final Rule in its final decision, which is scheduled for August 30, 2024.
Preparing for the Final Rule
Given the uncertainty of the status of the impending non-compete ban, taking steps to enforce existing non-compete agreements and planning for a potential ban is necessary. As we have indicated previously, until the September 4th effective date, existing non-compete agreements remain enforceable (subject to state and local law) and new non-compete agreements can be entered into between parties. Employers should continue (or begin) reviewing existing non-compete agreements and determining if modifications or updates are required to support enforcement of permissible restrictions beyond the September 4th effective date, assuming the ban is upheld. For example, determining whether an employee meets the definition of a “senior executive,” and implementing or modifying non-compete agreements with such senior executives prior to the planned effective date.
Additionally, non-solicitation, non-disclosure, and confidentiality provisions are not covered by the FTC’s ban on non-competes. Accordingly, employers should review their employment agreements and general employee policies to confirm that appropriate restrictions are in place protecting the employers’ patients/customers, trade secrets, and confidential information. For health care providers in particular, consulting state-specific requirements for limitations on patient solicitation should also be considered. Carefully worded non-solicitation agreements can limit a former employee’s ability to actively solicit patients and/or employees of their former employer.
At the same time, employers should begin preparing to notify all affected workers in a clear and conspicuous manner that existing non-compete agreements that are not exempt from the FTC ban will not be enforced on or after the effective date. If the FTC ban is invalidated before September 4th, no action will be necessary by employers. To prepare, however, a model notice taken from the FTC website (in various languages) can be found here. Given the short amount of time between the anticipated August 30, 2024 Texas Federal Court decision and the September 4, 2024 effective date of the FTC ban, employers should have these notices and internal alerts prepared to go live no later than September 3, 2024.
Follow Garfunkel Wild for updates and challenges to the FTC’s Final Rule. As discussed, there have been several challenges to the Final Rule which may still delay the effective date and/or may stay enforcement.
A copy of the Final Rule is available at https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete-rule.pdf. Garfunkel Wild is available to assist with any questions related to existing and future agreements.
Should you have any questions regarding the above, please contact the authors, the Garfunkel Wild attorney with whom you regularly work, or contact us at info@garfunkelwild.com.
Many clients are asking whether the Federal Trade Commission (FTC) ban has gone into effect and, if not, what the status is currently. As we reported previously, click HERE, the FTC enacted a nationwide ban on most non-compete agreements, subject to certain narrow exceptions, that was anticipated to take effect on September 4, 2024. Since that time, however, multiple court challenges have been filed, testing the validity of the ban.
Presently, the FTC’s ban on non-compete agreements has not taken effect. Again, the anticipated effective date is September 4, 2024, subject to the outcome of pending litigations discussed below. Accordingly, businesses and employees who already have existing non-compete agreements in place, remain subject to the terms and conditions of such agreements, subject to applicable local and state laws.
General recommendations at this time:
- Businesses should review their existing non-compete agreements to determine if they would fit any exception to the non-compete ban.
- Businesses should take steps to prepare to notify staff if the FTC ban goes in to effect on September 4, 2024.
- Businesses can explore other ways to protect their interests, including non-solicitation and confidentiality agreements.
A further decision regarding the status of the FTC ban is expected on or before August 30, 2024. Until then, a lot of uncertainty remains about the future. Many believe that much of the current FTC ban will be invalidated by the Courts, and our Garfunkel Wild attorneys will continue to monitor the updates and provide guidance.
Legal Challenges to the FTC Ban and Next Procedural Steps
The leading case challenging the FTC ban is pending in a Texas Federal Court. In that case, Ryan, LLC v. FTC, the court stayed the September 4th effective date of the FTC ban for the plaintiffs in that case only. The plaintiffs in Ryan, LLC v. FTC sought a nationwide ban, but the Court declined to extend the injunction nationally at the preliminary stage. Despite this denial, however, the Court openly doubted the FTC’s authority to nationally ban non-compete agreements. As such, the court could possibly issue a broader injunction against the Final Rule in its final decision, which is scheduled for August 30, 2024.
Preparing for the Final Rule
Given the uncertainty of the status of the impending non-compete ban, taking steps to enforce existing non-compete agreements and planning for a potential ban is necessary. As we have indicated previously, until the September 4th effective date, existing non-compete agreements remain enforceable (subject to state and local law) and new non-compete agreements can be entered into between parties. Employers should continue (or begin) reviewing existing non-compete agreements and determining if modifications or updates are required to support enforcement of permissible restrictions beyond the September 4th effective date, assuming the ban is upheld. For example, determining whether an employee meets the definition of a “senior executive,” and implementing or modifying non-compete agreements with such senior executives prior to the planned effective date.
Additionally, non-solicitation, non-disclosure, and confidentiality provisions are not covered by the FTC’s ban on non-competes. Accordingly, employers should review their employment agreements and general employee policies to confirm that appropriate restrictions are in place protecting the employers’ patients/customers, trade secrets, and confidential information. For health care providers in particular, consulting state-specific requirements for limitations on patient solicitation should also be considered. Carefully worded non-solicitation agreements can limit a former employee’s ability to actively solicit patients and/or employees of their former employer.
At the same time, employers should begin preparing to notify all affected workers in a clear and conspicuous manner that existing non-compete agreements that are not exempt from the FTC ban will not be enforced on or after the effective date. If the FTC ban is invalidated before September 4th, no action will be necessary by employers. To prepare, however, a model notice taken from the FTC website (in various languages) can be found here. Given the short amount of time between the anticipated August 30, 2024 Texas Federal Court decision and the September 4, 2024 effective date of the FTC ban, employers should have these notices and internal alerts prepared to go live no later than September 3, 2024.
Follow Garfunkel Wild for updates and challenges to the FTC’s Final Rule. As discussed, there have been several challenges to the Final Rule which may still delay the effective date and/or may stay enforcement.
A copy of the Final Rule is available at https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete-rule.pdf. Garfunkel Wild is available to assist with any questions related to existing and future agreements.
Should you have any questions regarding the above, please contact the authors, the Garfunkel Wild attorney with whom you regularly work, or contact us at info@garfunkelwild.com.