SCMP Breaking News - Labor & Employment
Year 9, Vol. 5 - April 24, 2024
On April 23, 2024, the Federal Trade Commission (“FTC”) approved a final Rule banning non-compete agreements. More specifically, the Rule makes entering into non-compete agreements with workers an unfair method of competition and, therefore, a violation of Section 5 of the FTC Act.
What does the New Rule Provide?
The Rule prohibits entering into new non-competes after the effective date, including with senior executives.
Under the new Rule, existing non-competes with “senior executives” remain in force. The Rule defines “senior executive” as an employee earning more than $151,164/year who is in a “policy-making position.”
Other existing non-competes are void as of the effective date. The Rule requires employers to give current and past employees notice that the employer will not enforce existing non-competes.
The definition of “non-compete” does not include prohibitions on competing during employment with the employer.
Under the new FTC Rule, Non-Disclosure Agreements (NDAs) and non-solicitation agreements are still lawful, provided they do not function effectively as non-compete clauses. The Rule specifically addresses the potential for these types of agreements to be overbroad or onerous in a way that they practically prevent a worker from seeking or accepting other work or starting a business after their employment ends.
Sale of the business scenarios – where the non-compete agreement is made in good faith to protect the buyer from competition by the seller to ensure the value of the acquired business is not undermined – are also excluded from the rule.
Important Points
The Rule is set to go into effect one hundred and twenty (120) days after it is published in the Federal Register.
The Rule raises constitutional concerns and significant questions as to whether the FTC has the authority to unilaterally ban non-compete agreements. We anticipate that several entities will seek temporary injunctions and file lawsuits challenging the Rule in the coming days and weeks. We will keep you posted as to any developments regarding this important rule.
We anticipate that numerous lawsuits will be filed in federal court challenging the final Rule in the coming days and weeks
SCMP will keep you updated as to any developments regarding this very important and crucial matter for employers in Puerto Rico.
Should you require further advice or assistance in relation to this matter, please contact us at (787) 945-0380.
Because of the general nature of this newsletter, nothing herein should be construed as legal advice or a legal opinion. SCMP Breaking News and all its content is property of Silva-Cofresí, Manzano & Padró, LLC
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