Wednesday, April 24, 2024

FTC bans all non-competes … Now what?

There's more than one way to skin a cat … or at least that's what many employers are hoping.

Yesterday, the Federal Trade Commission turned the workplace on its head by banning nearly all non-compete agreements.

I'm not going to summarize the FTC's Rule; your inboxes and LinkedIn feeds will be flooded with plenty of those … including this one we sent out this morning.

Suffice it to say that 120 days from the publication of the Rule in the Federal Register, employers will no longer be able to enforce any non-compete agreements except for those already in place with senior execs earning $151,164 or more annually.

Employers that want to continue locking down key employees to prevent them from jumping ship to competitors will now turn to us employment lawyers to find new and creative ways to get around the FTC's ban. The FTC's Rule seems to have that covered, too.

The Rule's definition of "non-compete clause" does not just include agreements that prohibit someone from working for a competitor, but also those that "penalize" someone for doing so.

"Penalize," the FTC explains, includes any agreement that would divest a worker of compensation upon a breach or require a forfeiture-upon-breach, including equity awards or deferred compensation. In other words, if an employee would interpret your agreement as requiring them to sit out of the market or forsake job opportunities because they don't want to give something up in exchange, the FTC will view your agreement as invalid.

There will be litigation over this Rule and SCOTUS will almost certainly have the final word. I remain highly skeptical that this Rule will ever take effect. For now, there is nothing to do other than arming yourself with knowledge of the Rule’s existence (which you’ve now done) so that you can watch and wait for further instructions. In the meantime, we employment lawyers will earn our stripes figuring out how to skin the non-compete cat, just in case.