Navigating Compliance: FTC Offers Guidance on Employee Noncompete Ban

The Federal Trade Commission (FTC) staff has offered a comprehensive guide to businesses on how to navigate compliance with the forthcoming ban on employee noncompete clauses. This rule, sanctioned by the FTC in a 3-2 vote in April, is poised to take effect on September 4, with the primary aim of prohibiting most employers from enforcing noncompete clauses and mandating workers to sign them.

Expected to liberate an estimated 30 million employees from the shackles of noncompete agreements, which restrict workers from pursuing similar employment with competitors for a specified duration, the FTC views these contracts as anticompetitive and in violation of Section 5 of the Federal Trade Commission Act.

Under the new rule, existing noncompete agreements will lose their enforceability starting September 4, with an exception carved out for senior executives, whose noncompetes will remain valid until their departure from the company. Additionally, no employee, including senior executives, can be compelled to sign a new noncompete after the rule's effective date.

Despite legal challenges mounted by business groups and requests for injunctions to halt its implementation, the FTC staff has been proactive in assisting companies to prepare for the rule. They have pledged to promptly notify the public through official channels if an injunction is issued and have urged employers to voluntarily refrain from using noncompete agreements regardless of legal proceedings.

In practical terms, compliance with the rule entails a proactive approach from businesses. They must refrain from including noncompete clauses in any employment-related documents or materials as of September 4. It's important to note that the ban solely applies to activities occurring post-employment termination and doesn't impede companies from restricting workers from accepting other employment or starting their own businesses while still employed.

The rule encompasses a broad spectrum of workers, ranging from full-time and part-time employees to independent contractors, interns, volunteers, and apprentices. Notably, contracts stipulating repayment of bonuses upon early employee departure are deemed permissible and fall outside the scope of noncompete agreements.

Regarding international implications, employers can include language in contracts restricting employees' employment activities abroad. However, specific criteria must be met for senior executives' noncompete clauses to remain enforceable post-implementation.

Lastly, companies holding active noncompete agreements must ensure that affected workers are duly notified by September 4 that these clauses are no longer enforceable. The notice must be clear and conspicuous and can be disseminated via various channels, including paper, email, or text message. While individualized notices are not mandated, mass mailings are acceptable, and the notice need not be provided in languages other than English, although other languages may be employed when appropriate.

By fLEXI tEAM