WHAT IS A NON-COMPETE CLAUSE?
A “non-compete clause” means a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (i) 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 (ii) operating a business in the United States after the conclusion of the employment that includes the term or condition. 16 C.F.R. §910.1.
THE FTC RULE
On April 23, 2024, the Federal Trade Commission (“FTC”) issued a final rule which was to take effect on September 4, 2024, and which would equate employers engaging in non-compete clauses with workers as an unfair method of competition on or after the rule’s effective date. Three exceptions are carved out by the rule, (i) pre-existing non-compete clauses with “senior executives” remain in force, (ii) the rule does not apply to non-compete agreements entered into by a person pursuant to a bona fide sale of a business entity, and (iii) the rule does not apply to causes of action which have accrued prior to the effective date of the rule. 16 C.F.R. §910.2(a), §910.3.
Effectively, the rule would ban all non-compete clauses with “workers,” defined as a natural person who works or worked, paid or unpaid, for a franchisee or franchisor. 16 C.F.R. §910.1. The term encompasses all persons, regardless of their job title or status, so independent contractors, volunteers, and interns are all included. Id. This means that all non-compete agreements entered into after September 4, 2024, would be considered an unfair method of competition and be held void, save for the scarce few exceptions noted above.
At current, the rule is not being enforced. On August 20, 2024, the U.S. District court for the Northern District of Texas held that the FTC’s rule is unlawful in the case of Ryan LLC v. FTC, 2024 U.S. Dist. Lexis 148488 (N.D. Tex. 2024). Until the appeal process for this case moves forward, and this case is ultimately decided, it remains unclear what the future status of non-compete agreements will be. Thus, it is vital to consult with your attorney before taking any action.
UNCLEAR NON-COMPETE RULES?
Finding yourself attempting to navigate the legal complexities of ever-changing non-compete laws? Gatlin Voelker, PLLC has experienced attorneys ready to suit your needs. Call Gatlin Voelker with questions or to discuss your non-compete agreement today at +1-859-535-0155.