On April 23, 2024, the Federal Trade Commission issued a final Rule https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete-rule.pdf banning non-competition agreements. The FTC claims the Rule promotes competition by “protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation”. In support of the Rule, the FTC Chair Lina M. Khan stated: “[n]oncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism…” The following is a high-level summary of the new Rule:
- Preempts conflicting state laws.
- Non-compete defined as: “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (2) operating a business in the United States after the conclusion of the employment that includes the term or condition.”
- The term “worker” is defined broadly under the Rule as employees, independent contractors, externs, interns, volunteers, or apprentices.
- With some exceptions, all non-competes entered into after the Rule goes into effect in late September are unenforceable.
- Existing non-competes with senior executives can remain in force.
- Existing non-competes with workers who are not senior executives are no longer enforceable after the Rule goes into effect in late September, and employers must notify workers that the non-complete in no longer enforceable. `
- The Rule does not apply to non-competes entered into as part of the sale of a business.
Although the FTC has issued a final Rule, the business community is almost certain to challenge the FTC’s authority to issue the Rule in an effort to block the Rule.
We are closely watching; there is certainly more to come.
M. Jansen Voss has developed a diverse defense litigation and appellate practice in both state and federal courts in Alabama and Mississippi. He represents a wide range of businesses, governmental entities, and individuals in complex personal injury and wrongful death lawsuits, business disputes, and breach of contract matters.
About Christian & Small
Christian & Small LLP represents a diverse clientele throughout Alabama, the Southeast, and the nation with clients ranging from individuals and closely held businesses to Fortune 500 corporations. By matching highly experienced lawyers with specific client needs, Christian & Small develops innovative, effective, and efficient solutions for clients. With offices in Birmingham, metro-Jackson, Mississippi, and the Alabama Gulf Coast, Christian & Small focuses on the areas of litigation and business, is a member of the International Society of Primerus Law Firms, and is a Mansfield Rule™ Participating Law Firm. Our corporate social responsibility program is focused on education, and diversity is one of Christian & Small’s core values.
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