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Federal Trade Commission (“FTC”) Publishes Its Final Rule, Barring Most Noncompete Agreements

            On April 23rd the FTC issued a final rule which for all practical purposes would ban noncompete agreements nationwide. Under the new rule, existing noncompete agreements for senior executives can remain in force, but employers are not allowed to enter into or enforce new noncompete agreements with senior executives. The final rule defines senior executives as employees earning more than $151,164 annually and who are in “policy-making positions”. Under the new rule, employers will have to provide notice to workers other than senior executives who are bound to an existing noncompete that the agreement will not be enforced against him/her in the future. The FTC actually went as far as to provide “model language” in its final rule that employers can use to communicate to its employees.

            The final rule will become effective 120 days after publication in the Federal Register; however, there is a high likelihood that the final rule will be delayed because of legal challenges. If this new rule can withstand the legal challenges, which are practically certain to take place, it would deem most noncompete clauses unenforceable and require employers to tell their employees that they are not going to enforce them.

            This final rule would also limit contract language that would for all practical purposes ban the employee from working in the same field such as very broad non-solicitation language and other types of clauses that employers often put into noncompete and/or employment contracts. There will certainly be more discussion regarding the FTC’s new rule banning most noncompetes as this matter makes its way through the court challenges. Wessels Sherman will keep you informed as these developments take place.

Questions? Contact attorney Joseph Laverty at 563-333-9102 or by email.

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