The FTC Issues Non-Compete Ban – What Now?
In Michigan, courts generally presume the legality, validity, and enforceability of contracts. Although noncompete agreements have generally been disfavored by the law, they are enforceable to the extent that they are reasonable in time, geographic distance, and competitive interest. This may all be changing soon though. On April 23, 2024, the Federal Trade Commission (FTC) issued a Final Rule creating a national ban of noncompete agreements.
After the Proposed Rule was issued in January 2023, it received more than 26,000 comments with over 25,000 of them in support of the proposed ban. The FTC touts that this ban will generate “over 8,500 new businesses a year, raise worker wages, lower health care costs, and boost innovation.”
WHAT DOES THIS MEAN FOR YOU?
Existing noncompete agreements will be unenforceable after the effective date of the ban—120 days after the date of publication in the Federal Register. By then, employers will have to provide notice to employees currently bound by noncompete agreements that they are not enforceable against them in the future. Noncompete agreements with senior executives (representing less than .75% of the workforce per the FTC) will remain in force. However, employers are restricted from entering into or trying to enforce any new noncompete agreements with these senior executives. The Final Rule defines “senior executives” as those earning more than $151,164 on an annual basis and who are in policy-making positions.
WHAT CAN YOU DO TO PROTECT YOUR BUSINESS INTERESTS?
There are still mechanisms through which businesses can protect their interests, including implementing trade secrets, requesting non-disclosure agreements, and requesting non-solicitation agreements. However, it is important to work with an attorney to draft any such agreements carefully so as not to unintentionally create a non-compete agreement. The Final Rule also has an exception for a bona fide business sale. Whatever option you choose to protect your business interests, the attorneys at Foley, Baron, Metzger & Juip, PLLC are ready to assist you.
WHO WILL HAVE THE LAST WORD?
Expectedly, lawsuits have already been filed against the FTC regarding the Final Rule. On April 24, 2024, the U.S. Chamber of Commerce already filed a Complaint for Declaratory and Injunctive Relief calling the ban unlawful as well as arguing that the FTC has overstepped its authority. In all possibility, this could be a matter that will be tied up in the federal court system for years to come and head to the U.S. Supreme Court. This could stay or pause the effectiveness of the Final Rule.
For more information on this new ruling contact FBMJ attorneys Jospeh P. McGill or Silvia Alexandria Mansoor.