non-compete agreements

Subscribe to non-compete agreements

As employers continue to monitor the legal challenges against the Federal Trade Commission’s (FTC) final rule banning most non-compete agreements, they should not overlook similar efforts by other federal agencies and/or state legislatures to limit and/or prohibit the use and enforcement of non-compete agreements between employers and employees.

To that end, the National Labor Relations Board’s (NLRB) has primed itself to take its own swing at non-compete agreements. On October 7, 2024, NLRB General Counsel Jennifer Abruzzo issued a 17-page memo focused on the use of overly broad non-compete agreements. It expands on her May 30, 2023 memo, in which she opined that non-compete agreements tended to chill an employee’s rights to engage in concerted activity protected under Section 7 of the National Labor Relations Act, including advocating for improved working conditions through concerted efforts to obtain employment with other employers or carry out concerted threats of resignation.Continue Reading The non-compete agreement showdown: After the FTC’s final rule setback, the NLRB gears up to tackle non-compete agreements

On August 20, 2024, Northern District of Texas Judge Ada Brown barred the U.S. Federal Trade Commission’s (FTC) rule banning non-competes from taking effect. The rule, which proposed to ban virtually all existing and future non-compete agreements across the U.S., and was scheduled to go into effect on September 4, 2024, is now effectively blocked.

Judge Brown reasoned that the FTC’s non-compete ban constituted an unlawful agency action, stating that the FTC lacks the authority to ban practices it deems unfair methods of competition by adopting substantive rules. Specifically, Judge Brown concluded that:

the FTC lacks statutory authority to promulgate the Non-Compete Rule, and that the Rule is arbitrary and capricious. Thus, the FTC’s promulgation of the Rule is an unlawful agency action . . .[The rule] is hereby SET ASIDE and shall not be enforced or otherwise take effect on September 4, 2024, or thereafter.”

Continue Reading Texas federal court strikes down FTC non-compete rule

On May 7, 2024, the Federal Trade Commission (FTC) published a final regulatory rule that, if it takes effect as planned, which is currently scheduled for September 4, 2024, would invalidate and ban virtually all non-compete agreements in the U.S. Following publication of the rule in the Federal Register, legal challenges were promptly filed in Texas and Pennsylvania federal courts (another challenge was filed in Florida federal court in June). Motions seeking to preliminarily enjoin the final rule from taking effect followed, with the petitioners in each case arguing, among other things, that the FTC lacks authority to issue substantive rules concerning workplace non-compete agreements and, also, that the FTC did not sufficiently tailor the rule to the claimed purpose underlying it (by essentially issuing a blanket non-compete ban).Continue Reading What should U.S. businesses be doing right now concerning the FTC’s non-compete rule?

As previously reported, in late April, the Federal Trade Commission (FTC) unveiled a final regulatory rule that would invalidate and ban virtually all preexisting and future non-compete agreements in the U.S. Simply put, the rule, if it takes effect – which is currently scheduled to occur on September 4, 2024 though, as noted below, that might not come to pass – would represent the largest seismic shift ever in U.S. non-compete law.

Following publication of the rule in the Federal Register in early May, legal challenges were promptly filed in Texas and Pennsylvania Federal Courts (another challenge was filed in Florida federal court in June). Motions seeking to preliminarily enjoin the final rule from taking effect then ensued, with the petitioners in each case arguing, among other things, that the FTC lacks authority to issue substantive rules concerning non-compete agreements and, also, that the FTC did not sufficiently tailor the rule to the purpose/justification underlying it (by issuing an essentially blanket ban on non-competes).Continue Reading Compete chaos: Pennsylvania Court blesses FTC non-compete ban just weeks after Texas Court strikes it down

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