Since January of 2023, Crowe & Dunlevy has been tracking and updating its clients on the Federal Trade Commission’s (FTC) rule to prohibit employers from imposing non-compete clauses on employees (see previous Crowe & Dunlevy advisories circulated in January 2023, June 2023, and March 2024). Now, over a year and a half later, the rule is set to go into effect on September 4, 2024. As a result, any existing non-compete agreements an employer has entered with a current or former employee, except “senior executives” who are in a “policy-making position” and make more than $151,164 on an annual basis, will be unenforceable as of September 4, 2024.
What should you do and know in light of this sea change? Effective September 4, 2024, employers should:
- Not include non-compete provisions in future employment agreements, employee handbooks or workplace policies for any full-time or part-time employee, including a “senior executive,” independent contractor, intern, extern, volunteer or otherwise;
- Give written notice to any current or former employee, except a “senior executive,” independent contractor, intern, extern, or volunteer who executed a non-compete agreement (or any agreement with a non-compete provision in it) that the non-compete is unenforceable via hand delivery, letter, email or text message to the extent you have the contact information for the individual (e.g., an employer may not have the contact information for certain former employees);
- Determine if any of your employees fall within the definition of “senior executives” and are therefore excluded from the rule through the effective date; and
- Not enforce or threaten to enforce existing non-compete agreements, unless it is a “senior executive” or the violation occurred prior to the effective date.
What happens if you do not comply with the rule? The FTC can issue cease-and-desist orders to enjoin violations of the rule and further pursue administrative action against a non-compliant employer. The FTC’s enforcement mechanisms can also lead to civil monetary penalties in three scenarios. First, the FTC can enforce civil monetary penalties against the employer if it violates a (i) consent order or (i) cease and desist order issued after an administrative finding of liability. Second, the employer could be monetarily liable if it had actual or implied knowledge that the Rule prohibited its conduct, even if the FTC did not issue a final order against the employer. Third, if the FTC issues a cease and desist against another employer, and the current employer knowingly engages in that same unlawful practice, then the current employer could be monetarily liable. Under all three of the above scenarios, the employer could be liable for a maximum of $51,744 penalty for each violation.
Is the rule going to take effect on September 4, 2024? There are still legal challenges across the country seeking nationwide injunctive relief to prevent the rule from taking effect. As each day passes, however, employers get closer and closer to needing to comply with the rule. At this point, it would be prudent to contact a member of Crowe & Dunlevy’s Labor and Employment Practice Group to help navigate these issues because September 4, 2024 looms on the horizon.
If you have any questions regarding the FTC’s final rule on non-compete agreements, please contact Allen Hutson, Chris Vaught, Logan Hibbs or any member of the firm’s Labor & Employment Practice Group.