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What does the regulation say? Under the new Federal Trade Commission rule, for-profit employers are prohibited from entering into new non-compete agreements with all employees, including senior executives.
Who does it apply to? The rule applies to anyone who works for a for-profit employer including independent contractors.
What about existing agreements? Existing non-compete agreements with senior executives (earning more than $151,164 annually and who are in policy-making positions) remain enforceable. Employers must notify all other workers that existing non-competes are unenforceable by the effective date.
Does this impact non-solicitation provisions? It does not look like it prohibits any kind of non-solicitation (of clients, customers, or employees) based on the text, but we anticipate some clarification in the coming weeks assuming the rule stands.
When will this become effective? The rule becomes effective 120 days after publication in the Federal Register. Businesses will have until that date to come into compliance.
What does this mean for my business? The U.S. Chamber of Commerce has vowed to challenge the rule in court, perhaps as early as April 24, 2024 (TODAY), and thus whether the rule ultimately is enforceable is unclear. There is a strong possibility that the district court that hears the lawsuit will have the ability to issue a temporary restraining order or preliminary injunction of the rule, which would delay the implementation of the rule while the challenge to its validity plays out in the courts.
We will continue to keep you posted as this unfolds.