“What now?” It’s a question on many of our clients’ minds since the FTC finalized a rule to ban non-compete agreements between virtually all employers and all workers last week.
So, what happened?
The final FTC rule covers most employers, with some exceptions (such as certain non-profits and financial institutions). Some of the key elements of the rule include:
– A ban on all new post-employment non-compete agreements across all worker types, including both senior executives and lower-level employees, starting 120 days after the rule is published in the Federal Register. It does not apply to agreements prohibiting an employee from competing against an employer while employed.
– Existing non-compete agreements may continue to be enforced, but only for “senior executives”—generally an employee who holds a policy-making position and earns at least $151,164 annually.
– Employers must notify employees that post-employment non-compete agreements are no longer enforceable.
– The ban makes an exception for non-compete agreements related to the sale of a business, regardless of the ownership percentage involved in the transaction.
So what now?
Legal challenges, such as a lawsuit filed by the U.S. Chamber of Commerce, are already underway. While it’s possible that a federal judge may temporarily halt the rule’s enforcement or strike it down, businesses should prepare for the new landscape rather than rely on this uncertainty.
For companies—including our clients—this is a good time to examine whether compensation and other financial incentives are optimized to recruit and retain talent for the long term.
For example, retention bonuses can incentivize employees to remain within the company or a particular position. Performance bonuses tied to ambitious but attainable goals can reward workers who meet long-term targets. Equity incentives, such as restricted stock and cash deferred bonuses, give workers a tangible stake in a company’s success. Expanding equity compensation beyond the C-suite to key personnel can further align employee interests with the company’s long-term growth.
In addition, creating a supportive environment and providing training, mentorship, and growth opportunities can definitely impact where people choose to work and how long they stay.
Finally, utilizing non-disclosure, non-solicitation, confidentiality, and other forms of agreements may be an option—but they can’t merely be non-competes, as defined in the rule, by another name.
We’re stepping onto a new playing field. A world with no non-competes poses unique challenges. But on the flip side of challenge is opportunity. With the right strategy, businesses can still attract and retain great talent while protecting their interests.
