Culhane’s Atlanta partner, Harvey Linder recently authored an article about how the new FTC ban will impact employees and actions that should be taken, which has been published by Law360.

Here are a few excerpts from Harvey’s article:

Background

On April 23, the FTC issued a final rule banning noncompete clauses nationwide.[1] The FTC contends that this protects the fundamental freedom of workers to change jobs, increases innovation and fosters new business formation. An estimated 30 million U.S. workers are subject to some form of noncompete.

The FTC says that noncompetes provide companies with contractual conditions that prevent workers from taking a new job or starting a new business. But that statement alone is incomplete and therefore misleading.

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Impact on Employers

Under the FTC’s new rule, existing noncompetes for the vast majority of workers will no longer be enforceable after the rule’s effective date. Existing noncompetes for senior executives — who represent fewer than 0.75% of [workers] — will be grandfathered in and can remain in force under the FTC’s final rule.

Senior executives are defined as workers earning more than $151,164 annually and who are in policymaking positions. Employers, however, are banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives.

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Legal Responses to the Promulgation of the Final Rule

The FTC determined that noncompete clauses are an unfair method of competition, and therefore a violation of Section 5 of the FTC Act for employers to enter into noncompetes with workers and to enforce certain noncompetes.

Since the FTC’s publication of its final rule, there have already been a number of formal legal challenges to the ban seeking injunctive relief to stop or delay the ban’s effective date as well as to the FTC’s authority to promulgate such a broad policy including:

• • Ryan LLC v. FTC filed in the U.S. District Court for the Northern District of Texas, on April 23; and
  • U.S. Chamber of Commerce v. FTC filed in the U.S. District Court for the Eastern District of Texas, on April 24.

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Actions That Employers Should Take

Employers are now required to take certain actions required by the final rule. In addition, since employers will no longer be able to shield their businesses with noncompete clauses, employers need to identify and implement actions they can legally take to protect themselves.

The following recommendations should provide some of the needed protection.

First, employers should notify all employees who are not senior executives that their noncompetes are no longer enforceable against them.

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Conclusion

It hasn’t been determined if the FTC’s final rule will stand up to the court challenges it faces, but employers need to be prepared to deal with its implementation and protect against the potential loss of key employees.

To read the entire article, click HERE

The foregoing content is for informational purposes only and should not be relied upon as legal advice. Federal, state, and local laws can change rapidly and, therefore, this content may become obsolete or outdated. Please consult with an attorney of your choice to ensure you obtain the most current and accurate counsel about your particular situation.