The 2024 FTC Noncompete Ban

**UPDATE** On Tuesday, August 20, a federal judge in Texas issued a nationwide injunction on the FTC's non-compete ban described below. This means that, as of now, the FTC's non-compete ban will not be going into effect. As a result, businesses can continue to use non-competes in their worker agreements, so long as those non-competes comply with applicable state laws. If the judge's injunction on the non-compete ban is overruled by an appeals court, the FTC's non-compete ban may go back into effect. With this in mind, we are leaving this blog post in place so that businesses can be ready to comply with the ban if needed.

Earlier this year, the US Federal Trade Commission issued a decision to ban post-termination non-compete language in agreements for employees, independent contractors, and other workers. That decision is due to go into effect on September 4th, 2024. Read on to learn more about the scope of the ban and what your business can do to prepare for the ban. 

Among other things, the FTC is responsible for rooting out unfair and deceptive business practices in the US economy. Post-termination non-competes (i.e. restrictions on competition that limit a worker’s mobility after they leave a business) have slowly but surely been going out of favor in various states, with states like California, Colorado, and Massachusetts putting significant restrictions on their enforceability. The FTC is the latest to jump into the fray, but this time the decision has nationwide implications. 

FTC Ban Basics

WHAT DOES THE BAN MEAN?

All non-compete provisions with workers that are agreed to on or after September 4, 2024 are not enforceable. Existing non-competes with senior executives will still be enforceable, but existing non-competes with workers other than senior executives will no longer be enforceable. Employers must notify any workers (who aren’t senior executives) with existing non-competes that those non-competes are no longer enforceable.

WHAT IS A NON-COMPETE?

Any provision in a service agreement that penalizes or prevents a worker from (1) seeking or accepting work elsewhere in the US where such work would begin after the conclusion of the current engagement; or (2) operating a business in the US after the conclusion of the current engagement.

WHO IS A WORKER?

Any person who works for a business, regardless of whether the work is paid or unpaid, and regardless of whether the worker is an employee, independent contractor, extern, intern, volunteer, apprentice, or sole proprietor.

WHO IS A SENIOR EXECUTIVE?

Any worker earning more than $151,164 who is a business’s president, chief executive officer, or any other person of the business who has policy-making authority.

DOES THE BAN APPLY TO SALES OF BUSINESSES?

The ban does NOT apply to non-competes entered into as part of a bona fide sale of a business entity. 

DOES THE BAN APPLY TO NON-SOLICITATION PROVISIONS?

The ban only applies to non-solicitation provisions that have the effect of a non-compete. 

DOES THE BAN APPLY TO EVERY BUSINESS IN THE US?

The FTC has jurisdiction over most businesses in the US, but not all industries. Businesses that are not subject to the FTC’s ruling include banks, savings and loan institutions, federal credit unions, common carriers, air carriers, and certain non-profits.

WHAT HAPPENS IF WE DON’T COMPLY WITH THE BAN?

Regardless of whether your business complies, the non-competes will not be enforceable. In addition, the FTC could issue a cease and desist order. If your business fails to comply with the order, the FTC can seek penalties in court of more than $50,000 per violation and seek additional compensation for those harmed. 

What steps should my business take?

Since the FTC announced the ban in April, a number of businesses have filed lawsuits to overturn the ban. As of the writing of this post, no court has overturned the ban. One court issued a temporary injunction against the ban with respect to a specific plaintiff, but that decision does not currently apply to anyone other than the plaintiff. Although September 4th is just around the corner, there is still time for a court to issue an injunction that has nationwide effect in stopping the enforceability of the ban. 

Despite the uncertainty, the ban is currently on track to go into effect on September 4th. As we approach September 4th, these are the steps you can take to comply with the FTC’s non-compete ban:

• Step 1: Determine whether your business has required any workers who are not senior executives to sign agreements with non-compete provisions. As part of this, you should assess whether non-solicitation provisions have the effect of a non-compete.
• Step 2: If your business has required any non-senior executive workers to sign non-competes, you need to notify those workers that the non-compete will not be enforceable after September 4, 2024. This notice must be provided no later than September 4, 2024. The FTC provides model language that you can use to notify affected workers. 
• Step 3: Going forward, your business should stop including non-compete provisions in its agreements with workers (including senior executives). This may mean you need to update your template agreements.
• Step 4: Your business should ensure it has sufficient confidentiality and intellectual property provisions in its agreements with workers. In the absence of non-compete provisions, confidentiality and intellectual property provisions take on even greater importance in preventing the unauthorized use of valuable information and IP by competitors.
• Step 5: Your business should consider whether there are any other strategies to protect legitimate business interests in the absence of non-compete provisions. 

SPZ is ready to help you comply with the FTC’s non-compete ban. If you have any questions about the scope of the ban, or would like our assistance with reviewing your worker agreements, don’t hesitate to reach out to an SPZ member. We look forward to helping you.

You can read the FTC’s own announcement about the ban here.