A NEW ERA FOR JOB MOBILITY: FAQ ON THE BAN ON NON-COMPETES

In a game-changing move, the Federal Trade Commission just voted to nix nearly all non-compete agreements, those pesky clauses that have kept workers from jumping to competitors or starting their own gigs. This decision is all about boosting economic freedom and it’s a big deal for recruiters and job seekers alike. Over the past month, we’ve been flooded with questions from candidates and clients about what how this ban impacts them, so let’s break it all down for you!

WHAT ARE NON-COMPETES?

Non-compete clauses have historically been used by employers to prevent employees from leaving to join competitors or start rival businesses. While intended to protect trade secrets and investments in employee training, these agreements often trap workers in undesirable jobs, stifling innovation and economic growth.

FTC Chair Lina Khan highlighted the negative impact of non-competes, sharing stories of workers stuck in abusive workplaces or unable to move to jobs that align with their values. The FTC estimates that around 101 million Americans, from minimum wage workers to CEOs, are currently bound by non-competes and that the rule will increase workers’ annual earnings in the U.S. by $524 per worker, totaling $53 billion nationally.*

What is the new ban on non-competes?

Under the new rule, assuming it is not blocked, employers must:

Provide clear notice to current and former employees (excluding senior executives) before the rule's effective date, stating that their non-compete clauses are unenforceable. The rule provides model language and allows notice delivery by hand, mail, email, or text.

Employers must also cease enforcing existing non-compete clauses for all workers other than senior executives without needing to rescind the agreements and refrain from entering into new non-compete agreements with any workers.

For non-senior executives, attempting to enforce or create non-compete clauses is considered unfair competition. For senior executives, only new non-compete agreements entered after the rule's effective date are prohibited.

How does the FTC define a “senior executive”?

The FTC defines "senior executives" as workers in policy-making positions who earned at least $151,164 in the previous year. A policy-making position includes roles like president, CEO, or other officers with policy-making authority over a business entity or its subsidiaries and affiliates. However, individuals who only have policy-making authority over a subsidiary or division, without influence over the entire enterprise, are not considered senior executives. The FTC's rule aims to align broadly with the SEC's definition of 'executive officer' while covering senior executives across various entities. For an entity to be part of a "common enterprise," it must include integrated business entities sharing characteristics like common officers, control, offices, funds, and marketing.

Does the rule prohibit non-solicitation, non-recruit, or confidentiality clauses?

No, the rule does not generally prohibit non-solicitation, non-recruit, or confidentiality clauses, as long as they do not prevent someone from seeking work or operating a business. The FTC will assess this on a case-by-case basis. Overly broad non-disclosure agreements that effectively prevent someone from working in the same industry could be considered non-competes, especially if they bar the use of any industry-related or publicly available information.

Does the FTC ban affect garden leave?

The new FTC ban on non-competes impacts garden leave provisions if they function as non-compete clauses. Garden leave, which involves an employee being paid while on leave but restricted from working for competitors, could be considered a non-compete if it effectively prevents the employee from seeking new employment or starting a business during the leave period. The FTC's rule would require employers to evaluate and potentially revise their garden leave policies to ensure they do not unlawfully restrict worker mobility.

Will the rule be retroactive?

The final rule no longer requires existing agreements to be rescinded. However, non-compete clauses for all workers except "senior executives" will be unenforceable if entered into before the rule's effective date. Additionally, employers must notify these workers that their non-compete clauses are no longer valid.

NAVIGATING THE NEW LANDSCAPE

The FTC's landmark decision to ban non-competes marks a pivotal moment in the evolution of the workplace. While it promises greater freedom and opportunity for both workers and employers, it also calls for a strategic shift in the approach for all involved.

The end of non-competes signals a new era of opportunity and empowerment for recruiters and job seekers!  For recruiters, it's time to rethink retention strategies, focusing on building a positive workplace culture that attracts and keeps top talent. For job seekers, it's a chance to explore a wider range of career paths, advocate for your worth, and find a company that truly aligns with your values and aspirations.

Get ready to embrace a more dynamic and competitive job market where talent is free to thrive.

Frequently Asked Questions About the FTC’s Rule Banning Non-Compete Agreements. (n.d.). Fisher Phillips. Retrieved May 22, 2024, from https://www.fisherphillips.com/en/news-insights/frequently-asked-questions-ftcs-rule-banning-non-compete-agreements.html