In a move poised to transform the labor landscape across the United States, the Federal Trade Commission has introduced a final rule that bans the use of noncompete agreements nationwide. This sweeping regulation—expected to significantly impact both employers and workers—raises important questions about the future of employment contracts and business operations.
What does the new rule do?
Categorically, the FTC’s new regulation prohibits noncompete clauses in any form—be it in written contracts, oral agreements or even company policies. Typically, these clauses prevent employees from joining competitors or starting similar businesses shortly after their employment ends.
Under the new rule, such restrictions are lifted, potentially freeing up workers to move between jobs more freely and start their ventures without fear of legal repercussions.
Who’s affected?
Under this rule, the term “worker” is broadly defined to include virtually anyone in a working relationship, covering employees, independent contractors, interns, volunteers and more.
Are there any exceptions?
Yes, there are critical exceptions. Notably, the rule does not apply to noncompete clauses related to the bona fide sale of a business. This means that noncompete clauses still can be used when buying or selling an insurance agency, for instance.
What should employers do?
Employers currently using noncompete agreements will need to revisit their policies. For non-senior executives, existing noncompete agreements will become unenforceable, and employers are required to inform their workers accordingly. The rule stipulates how this notification should be delivered, with the final regulation providing a model notice for clarity.
Effective date and legal challenges
The rule is slated to take effect 180 days after publication, which is expected to be in October. However, it’s important to note that this timeline might be extended. The rule is expected to face legal challenges, which could delay its implementation or impact its enforcement. The first lawsuit against the rule has already been filed, indicating a potentially contentious path forward.
What about other agreements?
The FTC clarifies that the rule does not affect agreements that protect trade secrets, such as nonsolicitation or nondisclosure agreements. Businesses can continue to use these tools to safeguard their proprietary information.
What’s next?
Employers should consider preparing for the rule by revising their current employment agreements and considering alternative measures like nonsolicitation or nondisclosure agreements to protect their interests.
This rule represents a significant shift in employment law and it could lead to broader changes in how businesses and workers negotiate the terms of employment. For those with questions or needing further guidance, reaching out to professional organizations or legal counsel is advisable.
For more information about the new rule, PIA Northeast members can click here.
Bradford J. Lachut, Esq.
Bradford J. Lachut, Esq., joined PIA as government affairs counsel for the Government & Industry Affairs Department in 2012 and then, after a four-month leave, he returned to the association in 2018 as director of government & industry affairs responsible for all legal, government relations and insurance industry liaison programs for the five state associations. Prior to PIA, Brad worked as an attorney for Steven J. Baum PC, in Amherst, and as an associate attorney for the law office of James Morris in Buffalo. He also spent time serving as senior manager of government affairs as the Buffalo Niagara Partnership, a chamber of commerce serving the Buffalo, N.Y., region, his hometown. He received his juris doctorate from Buffalo Law School and his Bachelor of Science degree in Government and Politics from Utica College, Utica, N.Y. Brad is an active Mason and Shriner.
