To our valued clients,
As you may be aware, on April 23, 2024, the Federal Trade Commission announced its Final Non-Compete Clause Rule (the “Final Rule”), which seeks to ban post-employment non-compete clauses between employers and their “workers” (which includes employees and independent contractors, among others). As things currently stand, the Final Rule is set to become effective on September 4, 2024.
With the effective date quickly approaching, it is important to understand the scope and implications of the Final Rule to ensure that you, as employers, are in compliance with the new administrative regulations. The Final Rule broadly prohibits an employer from entering into, or attempting to enter into a non-compete clause with a worker and prohibits the enforcement of pre-existing non-compete clauses. There are, however, the following general exceptions to the Final Rule: (a) non-compete clauses related to the bona fide sale of a business; (b) charitable and other non-profit organizations organized under Internal Revenue Code Section 501(c)(3); and (c) existing non-compete clauses for senior executives.
The Final Rule also requires an employer to provide clear and conspicuous notice to workers subject to a prohibited non-compete, in an individualized communication, that the worker’s non-compete clause will not be, and cannot legally be, enforced against the worker. The employer must provide notice by the Final Rule’s effective date of September 4, 2024, by hand-delivery, by mail at the worker’s last known street address, by email, or by text message.
While the constitutionality of the Final Rule still remains uncertain as legal challenges continue to progress, Willis Law still recommends that employers should start to determine which employees will need to receive notices required by the Final Rule and to prepare those notices for delivery on or before September 4, 2024. Employers should review and update form employment agreements as necessary to comply with the new rule. If you need assistance drafting employee notices or updating employment agreements, please contact our office and we will be happy to assist you.
For your convenience and review, a detailed memorandum that analyzes the Final Rule, its exceptions, penalties, and ongoing legal challenges can be viewed by clicking here.