Posted on July 17, 2024

The FTC has banned non-competes for all employers except in 3 limited circumstances. In all other work arrangements, non-competes are now illegal and will be unenforceable in the U.S.

Before you walk away thinking employers mean bosses, think again, and keep reading to learn who it really applies to.

Not only are non-competes going goodbye but employers must remove all non-compete language from everything including contracts, handbooks, and policies, as well as send required notice to current and former workers by the September 4th deadline. The rule also makes it illegal to communicate a non-compete exists when it does not.

So, who does the FTC ban on non-competes apply to?

Employers & workers, that’s who. But let’s break that down because who exactly is an employer or worker?

The new law has legal definitions carved out for employer and worker and it’s not the standard way we may think of employer and worker. No, the legal definition is much broader.

Here is what they mean:

Employer is defined as a person, individual or legal entity, including businesses, that hires another.

Worker is defined as an employee, contractor, volunteer, intern, extern, apprentice, and sole proprietors offering a service.

Under this definition, service providers are workers for their individual and corporate clients. Technically, the relationship is an independent contractor one. Therefore, if you include non-competes, it must be removed by the deadline.

There are 3 limited circumstances where non-competes are permitted in the U.S.

They are 1) for senior executives, 2) buying or selling a business, and 3) workers outside the U.S.

Only non-competes for senior executives (policy-decision-makers earning more than $151,164 a year) that were in existence prior to the deadline are enforceable. After the deadline, non-competes for senior executives are unenforceable like for all other workers.

The other circumstance in which non-competes are permitted are in buyer-seller arrangements.

One thing to note about the law is that it is limited to the U.S. That means you can still include non-competes against workers and business going abroad or already living in another country.

The deadline for complying with the FTC ruling and instructions to remove non-competes and notify workers is September 4, 2024.

After that deadline a violation can cost you.

Note that like with any new law that ruffles feathers, people sue. There are multiple lawsuits against the FTC that are pending. But until the court takes actions, everyone in the U.S. should proceed as normal to comply with the new law.

If you’re wondering how do I protect my business without a non-compete?

You have several options: trade secret laws, copyright laws, and non-disclosure agreements (NDAs). Depending on what you’re attempting to protect, trademark and other intellectual property laws are other tools.

Don’t forget… you have until September 4, 2024 to comply and send notice.

The FTC has prepared sample notice language you can use on their website here: https://www.ftc.gov/system/files/ftc_gov/pdf/Business-and-Small-Entity-Compliance-Guide-updated.pdf 

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