Navigating the FTC’s New Non-Compete Rule
The business landscape is constantly evolving, and recent changes from the Federal Trade Commission (FTC) are set to reshape how employers and employees interact. On September 4, 2024, a new FTC Final Rule will come into effect, fundamentally altering the use of non-compete agreements in the workplace. This rule, which may face delays due to pending legal challenges, aims to void existing non-competes and prohibit employers from establishing new ones.
Non-compete agreements have long been a topic of debate, with proponents arguing they protect business interests and opponents highlighting their restrictive nature on employee mobility and innovation. The FTC's decision stems from the belief that these agreements hinder fair competition and create inefficiencies in the market.
For young female creatives and entrepreneurs, understanding the implications of this new rule is crucial. Whether you're navigating employment contracts or establishing your own business, staying informed about these regulatory changes will empower you to make better decisions and protect your rights. At A Girl You Might Know Foundation, we're here to guide you through these complexities, ensuring you have the knowledge and resources needed to thrive in your career. Read for more details below, curated by A Girl You Might Know Foundation’s Vice President, Nicole Mastrangelo!
The Federal Trade Committee (“FTC”) issued a Final Rule that will go into effect on September 4, 2024, which may be delayed based on three pending legal challenges. The FTC ban will void pre-existing non-competes and bans employers from entering any new noncompete agreements. The FTC reasoned that noncompete agreements were an unfair method of competition, which leads to inefficiencies in the workplace and reduces competitiveness in the marketplace.
Senior executives are exempt from this ruling. The FTC defined senior executives as employees earning more than $151,164 or make policy changes. Senior executives include business presidents, chief executive officers, vice presidents, secretory, or those in similar positions. The ban does not permit senior executives to enter in new noncompete agreements.
The second exemption is when a bona fide sale of a business. If a business is sold, the previous owner of that business is bound by their noncompete.
Nonprofit organizations may not be affected by this ruling. The FTC Act only allows the FTC to govern a corporation, company, or association, regardless of incorporation status, that is in business to produce the business or their members a provide. Whether or not an organization’s profit is solely devoted to public purposes and whether the organization and/or members derive a profit.
The three pending litigations are (1) Ryan, LLC v. FTC, (2) Chamber of Commerce et. al. v. FTC, and (3) ATS Tree Services LLC v. FTC. The Judge in Chamber of Commerce et. al. v. FTC stopped all proceedings based on the first to file system. The first to file system is a legal principle only allowing the first case to proceed if more than one litigation is filed and the heart of issues are essentially the same. Thus, all eyes are on Ryan, LLC v. Federal Trade Commission.
Ryan, LLC v. Federal Trade Commission was filed in Federal District Court in Texas by the U.S. Chamber of Commerce along three private businesses including Ryan Tax Firm. The Ryan court lost their first two motions, Motion for Expedited Briefing Regarding its Motion for Stay of Effective Date and Preliminary Injunction. A Motion for Expeditated Briefing a motion to fast track their motions. A Motion for Stay of Effective Date, if granted, would have prevented the original order (the FTC’s ruling) from taking effect on September 4, 2024, and while most stays are not to exceed 90 days, there are exceptions that may be filed until the Supreme Court issues a final decision. A preliminary injunction is an order by the court judge at the beginning of the litigation, stopping the defendant from continuing performance of their alleged harmful action. Here, the preliminary injunction would not allow the FTC’s ruling. The defendant (the FTC) filed an opposition motion, which is a written statement by the defendant to the judge, explaining why the plaintiff (Ryan LLC) is not entitled to the motions previously filed. THE FTC’s opposition was filed on May 29, 2024, and if the court believes a hearing is necessary to discussion the opposition, the date will be June 17, 2024. The court will issue a decision on merits by July 3, 2024. A decision on merits refers to a case where the facts are applied to a law or ruling, leading to the court’s decision.
