non-compete agreements

As we posted on Tuesday, the Federal Trade Commission (FTC) has at long last issued its final regulatory rule banning virtually all existing and future U.S. non-compete agreements. In this series, we will unpack some of the more nuanced questions surrounding the final rule.

Does the final rule bar or invalidate non-compete agreements that ban competition while a worker is still employed by a business?

No. The final rule only applies to post-employment competitive activities. And in fact, in many states, employees have common law obligations to not engage in competitive activities during their employment, regardless and separate from any contractual obligations.Continue Reading Unpacking the FTC’s ban on U.S. non-compete agreements: Reviewing the fine print

As we posted on Tuesday, the Federal Trade Commission (FTC) has at long last issued its final regulatory rule banning virtually all existing and future U.S. non-compete agreements. In this series, we will unpack some of the more nuanced questions surrounding the final rule. Although the series is generally applicable, today’s post is particularly geared toward non-profit organizations.

Does the final rule apply to entities claiming tax-exempt status as non-profits?

It depends. In the commentary to the final rule, the FTC explains that Congress empowered the agency to prevent “persons, partnerships, or corporations” from engaging in unfair methods of competition. To fall within the definition of “corporation” under the FTC Act, an entity must be “organized to carry on business for its own profit or that of its members.” These FTC Act provisions have been interpreted in commission precedent and judicial decisions to mean that the FTC lacks jurisdiction over corporations not organized to carry on business for its own profit or that of its members.Continue Reading Unpacking the FTC’s ban on U.S. non-compete agreements: Impact on non-profit organizations

As we posted yesterday, the Federal Trade Commission (FTC) has at long last issued its final regulatory rule banning virtually all existing and future U.S. non-compete agreements. In this series, we will unpack some of the more nuanced questions surrounding the final rule. Although the series is generally applicable, today’s post is particularly geared toward private equity firms and financial institutions.

How does the sale-of-business exception work?

One of the exceptions to the final rule is that it does “not apply to a non-compete clause that is entered into by a person pursuant to a bona fide sale of a business entity, of the person’s ownership interest in a business entity, or of all or substantially all of a business entity’s operating assets.”

This language is fairly similar to an exception included in the FTC’s January 2023 proposed non-compete rule – however, there is an important change in the final rule. Specifically, the proposed rule included an exception for certain non-compete agreements between the seller and the buyer of a business that applied only to a substantial owner, member, or partner, defined as an owner, member, or partner with at least 25 percent ownership interest in the business entity being sold. In the final rule, however, the FTC has dropped the 25 percent ownership interest requirement.Continue Reading Unpacking the FTC’s ban on U.S. non-compete agreements: Impact on private equity and financial institutions

As we discussed in an October 2021 article regarding the future of restrictive covenant agreements in the U.S., President Biden in July 2021 directed the Federal Trade Commission (FTC) to explore potential ways to limit the use of non-compete agreements. In January 2023, the FTC followed through on the President’s directive by proposing a regulatory rule that would effectively ban such agreements.

And on Tuesday afternoon, more than 15 months after publishing the proposed rule and after receiving more than 26,000 public comments on the January 2023 proposal, the FTC at long last unveiled and approved its final non-compete rule (the final rule) in a party line 3-2 vote.Continue Reading BREAKING: FTC bans virtually all existing and future U.S. non-compete agreements

As we previously reported on April 23, 2020, in the midst of the COVID-19 pandemic that is dominating the news, Virginia Governor Ralph Northam signed into law a slew of bills passed by the General Assembly that transform Virginia’s employment laws. This is the second part of a series of alerts discussing Virginia’s groundbreaking new laws governing workplace discrimination and retaliation, worker misclassification, wages, restrictive covenants, background checks and whistleblower claims [Part 1 is here].

Employers will be subject to substantial liability for misclassification of employees

On March 10 and March 18, 2020, respectively, Governor Northam signed into law H.B. 984 and S.B. 894, which create a private right of action against employers for misclassifying employees as independent contractors. The new law, set to take effect July 1, 2020, will expose employers who misclassify employees as independent contractors to substantial liability, as employees bringing such actions may recover damages for lost wages/salary (including overtime worked, but not paid), employment benefits, or other lost compensation, as well as reasonable attorney’s fees and costs. Most notably, employers will face an uphill battle in defending these claims because the law creates a general presumption that an individual is an employee unless the employer can establish independent contractor status based on Internal Revenue Service guidelines.
Continue Reading Virginia adopts a wave of new employment laws. Part 2 – Worker classification and clampdown on restrictive covenants