The Federal Trade Commission (FTC) recently issued a final rule in April that will render existing non-compete agreements and clauses in agreements null and void. The rationale behind this rule is that employers have other options to safeguard their intellectual property, such as non-disclosure agreements (NDAs) and trade secret laws.
According to the proposed rule, a non-compete clause is defined as a term or condition of employment that prohibits a worker from seeking or accepting work with a different entity in the United States or from operating a business in the United States after the conclusion of their employment. This rule is set to take effect on September 4, 2024, unless litigation delays its implementation.
Employers must notify all employees and former employees who are bound by non-compete agreements that these agreements will not be enforced. This notification must be sent directly to each individual through email, text, or paper copy. There are exceptions to this rule, such as in the case of a bona fide sale of a business or existing causes of action.
For employers looking to protect their rights, it is essential to review existing agreements to ensure compliance with the new rule. It is also recommended to separate non-compete clauses from confidentiality agreements and to strengthen trade secret programs. By focusing on protecting trade secrets rather than enforcing non-compete agreements, companies can safeguard their valuable assets.
If the new FTC rule goes into effect, employers will need to modify agreements for new employees to exclude non-compete provisions. Failure to comply with the rule may result in FTC enforcement actions, as demonstrated by past cases involving large and small companies.
Overall, this presents a good opportunity for companies to reassess their agreements and shift towards protecting trade secrets through confidentiality agreements. By understanding the implications of the new rule and taking proactive steps to comply, employers can mitigate the risk of facing FTC enforcement actions in the future.