On April 23, 2024, the Federal Trade Commission issued a final rule federally banning covenants not to compete for almost all workers. The final rule prohibits employers from requiring covenants not to compete for their workers and also voids all existing covenants not to compete, with very limited exceptions. The final rule defines “worker” very broadly as “a natural person who works or previously worked, whether paid or unpaid, without regard to the worker’s title or the worker’s status under any other State or Federal laws, including, but not limited to, whether the worker is an employee, independent contractor, extern, intern, volunteer, apprentice, or sole proprietor who provides a service to a person.”
The only covenants not to compete which remain legal under the final rule are those applicable to “senior executives” which were in effect prior to the effective date of the final rule. The final rule defines a “senior executive” as anyone making over $151,164 per year who is also in a “policy-making position”. Whether a worker is in a “policy-making position” will be a question of fact.
The final rule does not go into effect until on or about August 21, 2024. However, the U.S. Chamber of Commerce filed suit against the Federal Trade Commission, so the effective date of the final rule may be stayed pending the court’s decision.
If the final rules becomes effective, employers are required to notify both current and former workers (if the former worker’s covenant not to compete is still in effect) that existing non-competes are no longer effective. This notice may be provided by hand, through mail, email or text message.
If you have any questions about the final rule and how this may impact you or your business, please contact us at 845-855-5900.
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