The Federal Trade Commission (FTC) recently issued a final rule that prohibits most non-compete agreements. If you are a business owner, it’s critical that you understand exactly what this rule does. But you should also know that the FTC non-compete ban is being delayed and challenged in court. There are also state limitations in New York that have long been in force.
As this issue continues to develop in courts, legislatures, and agencies, having informed legal counsel behind you will be important. Businesses in New York know they can count on the experience of Rosenbaum & Taylor.
If you have questions or concerns about non-competes, reach out to us today at (914) 326-2660 to learn more.
What Did the FTC Do?
On April 23, 2024, the FTC issued a final rule concerning non-compete agreements. The rule bans all non-compete agreements for all employees at all levels, throughout the country. This ban applies proactively to prohibit new agreements from being entered into after the effective date.
The basis for the rule is the FTC’s determination that non-competes are an unfair form of business competition. By prohibiting employees from leaving their employers and later competing with them, the FTC said, non-competes violate the FTC Act.
How Does the Rule Affect Existing Non-Compete Agreements?
While new non-competes are expressly banned for all employees, there are exceptions for existing non-competes. Existing non-compete agreements may remain in force for senior executives. For other workers, existing non-compete agreements are not enforceable.
According to the FTC, a senior executive is someone earning over $151,164 annually who is in a “policy-making position.” Fewer than 1% of all workers would meet this strict definition, according to the FTC.
Is the FTC Non-Compete Ban in Effect?
The new FTC rule is not scheduled to go into effect until 120 days after its publication date in the Federal Register. This means it probably won’t be effective before September. However, lawsuits are also likely to cause delays in enforcement.
Several lawsuits have already been filed against the FTC to stop this rule. Plaintiffs have asked the courts to implement a stay or injunction that effectively prohibits enforcement of the ban.
New York Rules Concerning Non-Competes
Notwithstanding the FTC rule, states are free to enact their own regulations of non-compete agreements. New York permits non-compete agreements but limits their scope. A non-compete is only legal and enforceable to the extent that it:
- Is necessary to protect the employer’s legitimate interests: This may include protecting the employer’s trade secrets and confidential information the employee has access to through the working relationship.
- Does not impose an undue hardship on the employee: In other words, the restriction must not be any greater than necessary to protect the employer’s legitimate interests.
- Does not harm the public: This is a broad and somewhat vague requirement that would likely vary from one industry to the next.
- Is reasonable in duration and geographic scope: Forbidding a former employee from ever competing against the employer anywhere would be considered unreasonable.
Legal Guidance for Your New York Business
Businesses are effectively in limbo due to the FTC non-compete ban, its delay, and actual and potential litigation. If you are a New York employer who is contemplating a non-compete agreement, you should consult an attorney. Rosenbaum & Taylor is here to advise you. We work to keep employers up to date on the various laws that may impact their bottom line.
If you have questions or concerns about non-competes, reach out to our New York business lawyers today at (914) 326-2660 to learn more.
