As the Federal Trade Commission's (FTC) final rule banning non-competes approaches its effective date of September 4, 2024, employers should begin preparing for its enforcement. Two key actions employers should consider now include: (1) initiating legal action for breaches of existing and enforceable non-competes, and (2) satisfying the final rule’s notice requirements. Let's explore each of these further.
1.Initiating Legal Action
The FTC's final rule will generally prohibit the enforcement of non-compete agreements, and provisions that act as non-competes, after the effective date. However, there are a few exceptions. One such exception is for causes of action related to non-compete provisions that accrue before September 4, 2024. In these cases, employers still retain the right to pursue legal action. So long as the breaching activity occurs before the rule's effective date, the employer’s cause of action seemingly should not be impaired by the final rule even if the lawsuit is brought after the effective date. § 910.3(b). However, some commentators point to the FTC’s contradictory language to question this, “the final rule does not render any existing non- competes unenforceable or invalid from the date of their origin. Instead, it is an unfair method of competition to enforce certain non-competes beginning on the effective date.”
Employers should review their existing non-compete agreements and assess any potential breaches. If a cause of action has accrued, it is wise to consult with legal counsel and consider initiating litigation promptly to avoid potential complications under the new regulatory framework.
2. Complying with the Notice Requirement
In addition to addressing any accrued causes of action, employers must also comply with a critical notice requirement set forth in the FTC's final rule. By or before September 4, 2024, employers are required to inform both current and former workers that their non-compete agreements will no longer be in effect, and cannot legally be enforced, after the effective date. This notice must be clear and conspicuous, delivered individually to each worker, and can be sent via various methods, including hand delivery, mail, email, or text message . § 910.2(b). Due to the publicity of the final rule, it is anticipated that employees and former employees will be awaiting these notifications.
The notice requirements are clearly stated in the final rule, and employers could be subject to violations if not in compliance by or before the rule’s effective date on September 4, 2024.
As the final rule’s effective date quickly approaches, employers should start prioritizing these two key areas. For assistance with these matters, contact me or your BrownWinick attorney to discuss compliance and how to best protect your interests.