This article originally appeared in the June 2024 issue of Security Business magazine. Don’t forget to mention Security Business magazine on LinkedIn and @SecBusinessMag on Twitter if you share it.
Sometimes an employee is so valuable that you do not want him or her to work for a competitor. An integrator may ask that, as a condition of employment, they agree not to compete with the business after departing. Historically, such non-compete agreements have been governed by state laws that vary widely across jurisdictions; however, a new rule recently announced by the Federal Trade Commission (FTC) seeks to change the competitive landscape.
In one of its most significant initiatives since its founding, the FTC announced a final rule in late April 2024 banning employers from entering into, enforcing, or attempting to enforce post-employment non-compete clauses with workers, subject to limited exceptions; thus, invalidating all existing non-competes with a narrow exception for certain senior executives and the bona fide sale of a business. This rule won’t be effective until Sept. 4, 2024, but it is already facing legal challenges in court.
The Details
If and when the rule becomes effective, it may have groundbreaking consequences for almost every industry – including security. Among other things, the final rule:
- Declares that an entity under the FTC’s authority engages in unfair competition if, regarding a worker, it enters into or attempts to enter into a non-compete clause; enforces or attempts to enforce a non-compete clause; or represents that a worker is subject to a non-compete clause.
- Creates a limited exception allowing for the enforcement of existing non-compete agreements with certain senior executives who entered into before the rule’s effective date, but prohibits new non-competes with all workers, including senior executives.
- Broadly defines worker not just as an employee, but all workers, including independent contractors, interns, externs, and volunteers.
- Defines senior executives as workers who are in a policy-making position and earned at least $151,164 in the preceding year (or the equivalent annualized for partial-year employment).
- Requires notice to workers who are parties to a non-compete agreement that is prohibited by the rule (workers other than senior executives) that the non-compete cannot and will not be enforced.
- Includes limited exceptions for and does not apply to (a) non-competes entered into in connection with a bona fide sale of business, and (b) lawsuits regarding an existing non-compete that arose before the rule’s effective date.
The final rule does not prohibit other restrictive covenants, such as customer or employee non-solicits, confidentiality agreements, and fixed-term employment contracts.
What Integrators Should Do Now
While these issues play out in the courts, employers should sit tight, since the rule is not yet effective yet and may never be. In the meantime, review existing non-compete agreements to determine general enforceability and to assess the impact if they are deemed invalid. Also, be prepared for employees to challenge the enforceability of non-compete agreements even before the rule is effective.
Importantly, be sure to monitor and comply with evolving state laws, and protect your company’s trade secrets by limiting access and other contractual protections.
