The FTC Announced its Wide-Sweeping Final Non-Compete Clause Rule on April 23, 2024
The Federal Trade Commission announced its wide-sweeping final Non-Compete Clause Rule on April 23, 2024. The new Rule is scheduled to become effective on September 4, 2024 but was met with immediate legal challenges by the U.S. Chamber of Commerce and others. In one of the pending cases, U.S. District Judge Ada Brown in Dallas concluded in a July 2024 opinion that the new Rule is likely unlawful. Although Judge Brown's opinion is currently limited to the parties involved in that case, a final decision is expected in late August that may have broader implications. If the legal challenges are unsuccessful and the new Rule becomes effective, it will ban all new non-compete agreements with any worker regardless of position or compensation.
Existing non-compete agreements with senior executives in policy-making positions (e.g., President, CEO, or other officer with policy-making authority) and who earn $151,164 or more per year will remain enforceable, but employers will be required to give written notice to all other workers with non-compete agreements that the agreements are no longer enforceable.
The Rule will apply nationwide despite existing state laws that currently allow for some form of non-compete agreements with workers including Colorado to a very limited extent (i.e., highly compensated workers earning at least $123,750 where the non-compete is no broader than reasonably necessary for the protection of trade secrets). Notably, the Rule does not prohibit confidentiality, non-disclosure, or non-solicitation agreements; however, state law may limit when and to what extent employers can use those types of restrictive covenants to protect their trade secrets and business. Under current Colorado law, for example, employers are permitted to ask for non-solicitation agreements of customers from workers earning $74,250 or more per year; recover education and training costs from workers beyond normal, on-the-job training; require reasonable confidentiality provisions; and enter into non-compete agreement in connection with the purchase and sale of a business or its assets.
The stated goals of the new Rule are to promote competition, raise wages for workers, increase start ups and innovation, and reduce health care costs due to the impact it will have on health care workers, many of whom are subject to non-compete agreements the new Rule will ban. Only time will tell!
In the meantime, if you have existing non-compete, non-solicitation, non-disclosure, confidentiality, or education and training reimbursement agreements with your employees and want to know whether they comply with current law or will survive the FTC ban should it go into effect, please give us a call!