On April 23, 2024 the Federal Trade Commission (“FTC”) issued a final rule banning most non competes nationwide.

Under the new rule, existing non-competes for a majority of all workers will no longer be enforceable. One of the very few exceptions is existing non-competes with Senior Executives that earn more than $151,164 annually and who are in policy-making positions. However, this limited exception only applies to non competes that are in effect prior to the new rule. Employers will not be allowed to enter into new non-competes with Senior Executives after the new rule is effective.

Are there alternatives to Non-Competes?

The FTC stated that trade secret laws and non-disclosure agreements (“NDAs”) will not be banned under the new rule. There are other options that should be discussed and implemented in your employment documents particularly for Michigan employers.

Are there exceptions to this ban?

The final rule does not apply to non-competes entered into by a person pursuant to a bona fide sale of a business entity. Also, it does not apply where a cause of action related to a non-compete accrued prior to the effective date.

Do I have to notify my employees of this ban?

Under the new rule, employers will be required to provide notice to workers bound to an existing noncompete that the noncompete agreement will not be enforced against them in the future.

When will the new rule become effective?

The final rule becomes effective 120 days after publication in the Federal Register.

What Does This Mean for You?

The future of non-compete clauses remains somewhat uncertain. In the interim, companies should review their employment contracts and explore alternative ways to protect confidential information, such as confidentiality protections. Additionally, companies should determine whether any other restrictive covenant, such as non-solicitation agreements are affected by these changes.