Federal Trade Commission Issues Rule Banning Noncompete Agreements Nationwide

Yesterday, the Federal Trade Commission issued a final rule banning post-employment noncompete agreements. You may read a summary of the rule here and the rule in its entirety here.

Key elements of the Final Rule are as follows:

• Ban on all new noncompete agreements between employer and employee, regardless of industry or type of worker after the effective date, which is 120 days after publication in the Federal Register.
• Allows existing noncompete agreements to remain in effect for senior executives only. A senior executive is generally defined as an employee earning more than $151,164 annually who is in a policy-making position.
• Formal recission of existing noncompete agreements is not required, but notice to employees that noncompete agreements are no longer enforceable is required.
• Does not apply to franchisee/franchisor contracts (though it does apply to employees working for a franchisee or franchisor.
  • However, FTC Commissioners Rebecca Kelly Slaughter and Alvaro Bedoya called for increased scrutiny on this front.

 
Under the FTC’s new rule, existing noncompetes for the vast majority of workers will no longer be enforceable after the rule’s effective date, which is 120 days after it is published in the Federal Register. Existing noncompetes for senior executives - who represent less than 0.75% of workers - can remain in force under the FTC’s final rule, but employers are banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives.
 
Employers will be required to provide notice to workers other than senior executives who are bound by an existing noncompete that they will not be enforcing any noncompetes against them. The FTC included model language in the final rule that employers can use to communicate this information to workers. 
 
HCAOA submitted formal comments to the FTC relating to this rule in April 2023. Those comments may be read by clicking here. In our submission, HCAOA noted that non-compete clauses are rare in home care employment agreements, but “direct-hire” clauses in service agreements signed by the client or their responsible party are much more common. These may be executed with an individual or a health care institution, such as an assisted living facility or acute-care provider. Under a direct-hire clause, an individual or institution who chooses to directly hire an agency caregiver, rather than contract for their services through the agency, may be required to pay the agency a sum (a “direct-hire payment”). Direct-hire payments are designed to enable an agency to recoup the costs that they have invested in a particular caregiver.
 
HCAOA will continue to monitor developments relating to this noncompete ban and will keep members updated.
 
If you are concerned this new rule will affect your business, we suggest you consult an experienced labor attorney.