Employers Beware: FTC Proposed Nationwide Ban Of Noncompete Agreements

Below is the language of the proposed Federal Trade Commission rule prohibiting noncompete agreements in certain cases that was announced in a FTC press release on April 23, 2024. The rule has yet to go in effect, and will result in litigation to bar it from becoming law. If the proposed rule may impact you or your company if it becomes law, stay tuned and in touch with a lawyer. Please contact Rumsey & Ramsey, a Dunwoody, Georgia law firm, at (770) 394-9400 to discuss your employment case involving a noncompete agreement with an attorney.

List of Subjects in 16 CFR Part 910
Antitrust.
For the reasons set forth above, the Federal Trade Commission adds a new subchapter J,
consisting of part 910, to chapter I in title 16 of the Code of Federal Regulations:
1. Add new subchapter J, consisting of parts 910 and 915, to read as follows:
SUBCHAPTER J—RULES CONCERNING UNFAIR METHODS OF COMPETITION
PART 910—NON-COMPETE CLAUSES
Sec.
910.1. Definitions.
910.2. Unfair methods of competition.
910.3. Exceptions.
910.4. Relation to State laws and preservation of State authority and private rights of action.
910.5. Severability.
910.6. Effective date.
Authority: 15 U.S.C. 45 and 46(g).
§ 910.1 Definitions.
As used in this part:
Business entity means a partnership, corporation, association, limited liability company,
or other legal entity, or a division or subsidiary thereof.
Employment means work for a person.
Non-compete clause means:
(1) A term or condition of employment that prohibits a worker from, penalizes a worker
561
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.
(2) For the purposes of this part 910, term or condition of employment includes, but is not
limited to, a contractual term or workplace policy, whether written or oral.
Officer means a president, vice president, secretary, treasurer or principal financial
officer, comptroller or principal accounting officer, and any natural person routinely performing
corresponding functions with respect to any business entity whether incorporated or
unincorporated.
Person means any natural person, partnership, corporation, association, or other legal
entity within the Commission’s jurisdiction, including any person acting under color or authority
of State law.
Policy-making authority means final authority to make policy decisions that control
significant aspects of a business entity or common enterprise and does not include authority
limited to advising or exerting influence over such policy decisions or having final authority to
make policy decisions for only a subsidiary of or affiliate of a common enterprise.
Policy-making position means a business entity’s president, chief executive officer or the
equivalent, any other officer of a business entity who has policy-making authority, or any other
natural person who has policy-making authority for the business entity similar to an officer with
policy-making authority. An officer of a subsidiary or affiliate of a business entity that is part of
a common enterprise who has policy-making authority for the common enterprise may be
562
deemed to have a policy-making position for purposes of this paragraph. A natural person who
does not have policy-making authority over a common enterprise may not be deemed to have a
policy-making position even if the person has policy-making authority over a subsidiary or
affiliate of a business entity that is part of the common enterprise.
Preceding year means a person’s choice among the following time periods: the most
recent 52-week year, the most recent calendar year, the most recent fiscal year, or the most
recent anniversary of hire year.
Senior executive means a worker who:
(1) Was in a policy-making position; and
(2) Received from a person for the employment:
(i) Total annual compensation of at least $151,164 in the preceding year; or
(ii) Total compensation of at least $151,164 when annualized if the worker was employed
during only part of the preceding year; or
(iii) Total compensation of at least $151,164 when annualized in the preceding year prior
to the worker’s departure if the worker departed from employment prior to the preceding year
and the worker is subject to a non-compete clause.
Total annual compensation is based on the worker’s earnings over the preceding year.
Total annual compensation may include salary, commissions, nondiscretionary bonuses and
other nondiscretionary compensation earned during that 52-week period. Total annual
compensation does not include board, lodging and other facilities as defined in 29 CFR 541.606,
and does not include payments for medical insurance, payments for life insurance, contributions
to retirement plans and the cost of other similar fringe benefits.
Worker means a natural person who works or who previously worked, whether paid or
563
unpaid, without regard to the worker’s title or the worker’s status under any other State or
Federal laws, including, but not limited to, whether the worker is an employee, independent
contractor, extern, intern, volunteer, apprentice, or a sole proprietor who provides a service to a
person. The term worker includes a natural person who works for a franchisee or franchisor, but
does not include a franchisee in the context of a franchisee-franchisor relationship.
§ 910.2 Unfair methods of competition.
(a) Unfair methods of competition—(1) Workers other than senior executives. With
respect to a worker other than a senior executive, it is an unfair method of competition for a
person:
(i) To enter into or attempt to enter into a non-compete clause;
(ii) To enforce or attempt to enforce a non-compete clause; or
(iii) To represent that the worker is subject to a non-compete clause.
(2) Senior executives. With respect to a senior executive, it is an unfair method of
competition for a person:
(i) To enter into or attempt to enter into a non-compete clause;
(ii) To enforce or attempt to enforce a non-compete clause entered into after the effective
date; or
(iii) To represent that the senior executive is subject to a non-compete clause, where the
non-compete clause was entered into after the effective date.
(b) Notice requirement for existing non-compete clauses—(1) Notice required. For each
existing non-compete clause that it is an unfair method of competition to enforce or attempt to
enforce under paragraph (a)(1)(ii) of this section, the person who entered into the non-compete
clause with the worker must provide clear and conspicuous notice to the worker by the effective
564
date that the worker’s non-compete clause will not be, and cannot legally be, enforced against
the worker.
(2) Form of notice. The notice to the worker required by paragraph (b)(1) of this section
must:
(i) Identify the person who entered into the non-compete clause with the worker;
(ii) 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.
(3) Exception. If a person that is required to provide notice under paragraph (b)(1) of this
section has no record of a street address, email address, or mobile telephone number, such person
is exempt from the notice requirement in paragraph (b)(1) of this section with respect to such
worker.
(4) Model language. For purposes of paragraph (b)(1) of this section, the following
model language constitutes notice to the worker that the worker’s non-compete clause cannot
legally be enforced and will not be enforced against the worker.
Figure 1 to paragraph (b)(4)—Model Language
565
(5) Safe harbor. A person complies with the requirement in paragraph (b)(1) of this
section if the person provides notice to a worker pursuant to paragraph (b)(4) of this section.
(6) Optional notice in additional languages. In addition to providing the notice required
in paragraph (b)(1) of this section in English, a person is permitted to provide such notice in a
language (or in languages) other than English or to include internet links to translations in
566
additional languages. If providing optional notice under this paragraph (b)(6), a person may use
any Commission-provided translation of the model language in paragraph (b)(4) of this section.
§ 910.3 Exceptions.
(a) Bona fide sales of business. The requirements of this part 910 shall not apply to a non
compete clause that is entered into by a person pursuant to a bona fide sale of a business entity,
of the person’s ownership interest in a business entity, or of all or substantially all of a business
entity’s operating assets.
(b) Existing causes of action. The requirements of this part 910 do not apply where a
cause of action related to a non-compete clause accrued prior to the effective date.
(c) Good faith. It is not an unfair method of competition to enforce or attempt to enforce a
non-compete clause or to make representations about a non-compete clause where a person has a
good-faith basis to believe that this part 910 is inapplicable.
§ 910.4 Relation to State laws and preservation of State authority and private rights of
action.
(a) This part 910 will not be construed to annul, or exempt any person from complying
with any State statute, regulation, order, or interpretation applicable to a non-compete clause,
including, but not limited to, State antitrust and consumer protection laws and State common
law, except that this part 910 supersedes such laws to the extent, and only to the extent, that such
laws would otherwise permit or authorize a person to engage in conduct that is an unfair method
of competition under § 910.2(a) or conflict with the notice requirement in § 910.2(b).
(b) Except with respect to laws superseded under paragraph (a) of this section, no
provision of this part 910 shall be construed as altering, limiting, or affecting the authority of a
State attorney general or any other regulatory or enforcement agency or entity or the rights of a
567
person to bring a claim or regulatory action arising under any State statute, regulation, order, or
interpretation, including, but not limited to, State antitrust and consumer protection laws and
State common law.
§ 910.5 Severability.
If any provision of this part 910 is held to be invalid or unenforceable by its terms, or as
applied to any person or circumstance, or stayed pending further agency action, the provision
shall be construed so as to continue to give the maximum effect to the provision permitted by
law and such invalidity shall not affect the application of the provision to other persons or
circumstances or the validity or application of other provisions. If any provision or application of
this part is held to be invalid or unenforceable, the provision or application shall be severable
from this part 910 and shall not affect the remainder thereof.
§ 910.6 Effective date.
This part 910 is effective [INSERT DATE 120 DAYS AFTER DATE OF
PUBLICATION OF THE FINAL RULE].
PART 915—[Reserved]
By direction of the Commission.
April J. Tabor,
Secretary.
568