Michigan Business Beat | Anthony M. Dalimonte, Foster Swift: FTC Bans Non-Compete Agreements

Michigan Business Network

Chris Holman welcomes back Anthony M. Dalimonte, Attorney, Southfield, MI Foster Swift, serving a half dozen offices statewide. There were several things Chris was looking to find out from Anthony in this conversation: Tell us about the new FTC rule banning non-competes? · FTC voted April 23, 2024 3-2 to publish its final rule banning all non-compete agreements. · The rule states that non-compete agreements violate Section 5 of the FTC Act. All non-compete agreements signed after the effective date will be illegal and violate federal law. · FTC defines “non-compete clause” as a term or condition of employment that either “prohibits” a worker from, “penalizes” a worker for, or “functions to prevent” a worker from (A) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (B) operating a business in the United States after the conclusion of the employment that includes the term or condition. · Effective date is 120 days after the rule is published in the federal register, which has not happened yet so sometime in September. · All non-compete agreements signed BEFORE the effective date are also unenforceable EXCEPT for non-competes that were signed by “Senior Executives”. What led to the FTC to vote to approve the final rule 3-2? · The FTC commissioners voted along party lines, so we knew this was going to be passed. The dissenting republican commissioners sort of previewed the basis for the challenge – that the FTC does not have the authority to make sweeping law changes. Does the FTC tell us who a senior executive is? · Senior executive is someone who makes over $151,164 and are in a “policy-making” position. · FTC says that less than 1% of employees fall into this category. Theory, according to the FTC, is that non-competes are typically less coercive with “senior executives” because more likely to be negotiated and often with the assistance of a lawyer. If an employee signed a non-compete and they aren’t a senior executive, what happens? · Non-compete is unenforceable AND employers have to give notice to employees that states they will not enforce any non-compete clause against you. · FTC provided model language that basically says you may seek to accept a job with any company or person, even if they compete with the company. You may run your own business, even if it competes with X company. And you may compete with X company following your employment with that employer. Are there any exceptions? · This rule does not apply where a person enters into a bona fide sale of a business entity. · This is a change from the proposed rule that came out last year where the FTC said you have to be selling at least 25% of business. Is this limited to only non-compete clauses? · In general, yes. · BUT the FTC says that if other overly broad clauses that prohibit or penalize a worker or “functions to prevent” a worker from working with someone else or starting their own business after they leave their job could be considered a “non-compete” clause. · So the FTC says Non-disclosure agreements, confidentiality agreements, non-solicitation agreements are still enforceable. Unless they are so broad and onerous that it acts as a “functional non-compete”. The FTC basically says this is a case by case basis. Is this going to be challenged? · Yes, it was challenged almost immediately in the Eastern District of Texas by one business group.. The US Chamber of Commerce also filed a lawsuit, and the Court is likely to join these two lawsuits together. So we will be watching this closely. » Visit MBN website: www.michiganbusinessnetwork.com/ » Watch MBN’s YouTube: www.youtube.com/@MichiganbusinessnetworkMBN » Like MBN: www.facebook.com/mibiznetwork » Follow MBN: twitter.com/MIBizNetwork/ » MBN Instagram: www.instagram.com/mibiznetwork/