Update: Almost immediately after this post went live on August 20, 2024, a federal judge in Texas issued a nationwide injunction striking down the FTC’s noncompete ban. So much for my effots to try to help employers get into compliance before the deadline! So the FTC’s ban on noncompetes is blocked for the foreseeable future. As an employer, you don’t have to send the notices mentioned below. For now, you can still enforce a current noncompetition agreement against a former employee who takes a job with a competitor or sets up a business that competes with yours. However, it would be wise to consider other ways to protect your business’s trade secrets and work product because noncompetes will continue to remain controversial and the subject of a lot of expensive litigation in the future.

As I warned you in June, earlier this year, the Federal Trade Commission issued a rule banning employee noncompete agreements. The noncompete ban goes into effect on Wednesday, September 4, 2024. Despite many pending lawsuits, no nationwide injunction has been entered yet that protects employers from this ban. So now is the time to get into compliance.

What Agreements are Banned?

The noncompete ban prohibits employers from offering or requiring employees to sign any new employment agreement on or after September 4 that restricts the employee from competing with the employer when employment ends. In addition, the FTC rule prohibits employers from enforcing noncompete agreements that are already in effect.

The FTC final rule defines a non-compete clause as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from” seeking or accepting employment or operating a business after the conclusion of the worker’s employment.

You are allowed to require your current employees to be loyal to their employer and not compete while still working for your company. But that duty of loyalty can be explained in a policy in the handbook, rather than in an agreement that requires additional legal consideration (usually monetary) and agreement of both parties.

There is one notable exception to the FTC noncompete ban. As an employer, you cannot enter into a new noncompete with a “senior executive” beginning on September 4, 2024. But existing noncompetes with senior executives can be enforced after the deadline. The FTC’s final rule defines “senior executive” as a worker who (1) earns more than $151,164 per year, and (2) is in a “policy-making position.”

Send Required Notice to Former Employees by September 4

Perhaps the most urgent part of the FTC rule is the required notice regarding the noncompete ban that you as an employer must send out. Before September 4, employers are required to send out a notice to anyone who has previously signed a noncompete that is now unenforceable (former employees) to let them know that the agreement is unenforceable.

The former employees who will need to receive the notice would include anyone who has a noncompete that hasn’t already expired. So if you had a noncompete that lasted for two years after termination of employment, you have to go back and notify any of those employees who previously signed a noncompete and who left your employment in the last two years.

The FTC’s Model Notice for Employers to Use

The Federal Trade Commission suggests you use this language in your notice. If you do use this model notice, you will be in compliance with the rule.

A new rule enforced by the Federal Trade Commission makes it unlawful for us to enforce a non-compete clause. As of September 4, 2024, [EMPLOYER NAME] will not enforce any non-compete clause against you. This means that as of September 4, 2024:

• You may seek or accept a job with any company or any person—even if they compete with [EMPLOYER NAME].
• You may run your own business—even if it competes with [EMPLOYER NAME].
• You may compete with [EMPLOYER NAME] following your employment with [EMPLOYER NAME].

The FTC’s new rule does not affect any other terms or conditions of your employment. For more information about the rule, visit ftc.gov/noncompetes.

How to Deliver the Notice to Former Employees

According to the FTC Rule, the required notice must “be on paper delivered by hand to the worker, or by mail at the worker’s last known personal street address, or by email at an email address belonging to the worker, including the worker’s current work email address or last known personal email address, or by text message at a mobile telephone number belonging to the worker.” If the employer “has no record of a street address, email address, or mobile telephone number,” you don’t have to provide the notice to that specific employee.

Protecting Your Business after the Ban on Noncompetes

Employers certainly will still need to protect their customer lists, their trade secrets and their business from insider competition to the extent possible under this ban. There are other legal tools you can use besides broad noncompete agreements. You should be talking to your employment attorney about the methods you can still employ to protect the customer good will, confidential information and trade secrets that your business has developed over the years.