Employment Law

Non-Compete Clause Rule

On Tuesday, April 23, 2024, the FTC issued its “Non-Compete Clause Rule,” which, if it goes into effect, will operate to ban all non-compete agreements between employers and workers. Clients who have used non-compete agreements with their workers in the past, or who were considering using them in the future, should take this rule into account.

Here are the nuts and bolts:

• The Rule applies to non-compete agreements, not to non-solicitation agreements, confidentiality agreements, or non-disclosure agreements.
• The Rule applies not just to employees, but to independent contractors, interns, volunteers and any other “workers.”
• The Rule not only applies to traditional non-compete agreements, but also agreements that would “penalize” a worker for competing, such as agreements that would require employees to forfeit equity, bonuses, deferred compensation, or other money upon a breach.
• The Rule not only applies to all new non-competes moving forward, but also to most existing non-competes, which will become unenforceable.
  • The Rule has an exception for existing non-competes for senior executives earning $151,164 or more per year. Those existing non-compete agreements remain binding and enforceable, but this exception does not extend to permit new senior executive non-competes moving forward.
• The Rule will require notice to current and former employees of the non-enforceability of their existing non-compete agreements.
• The Rule takes effect 120 days after its publication in the Federal Register. Publication has not happened yet and no one knows when that will be. 

We expect one or more legal challenges to be filed over this Rule, and it faces a long uphill battle in the lower federal courts and ultimately in the Supreme Court. 

For this reason, there is nothing for you to do for now other than arming yourself with knowledge of the Rule’s existence in the event that it takes effect. We will keep you updated about this Rule’s status moving forward.

If you have any questions, please do not hesitate to contact anyone in our Employment Law group at 402-492-9200 or Bob Lepp at boblepp@mgwl.com or Colin Bernard at colinbernard@mgwl.com.

Thu Apr 25, 7:47pm Share