In April 2024, the Federal Trade Commission (FTC) announced its decision to implement the Final Noncompete Clause Rule (Final Rule) banning post-employment noncompete clauses between employers and employees. The Final Rule was supposed to go into effect on September 4, 2024.
However, a federal judge in Texas blocked the Federal Trade Commission's attempt to ban noncompete agreements at the end of August. US District Judge Ada Brown in Dallas stated that the FTC lacks the jurisdiction to ban noncompetes.
It's estimated that approximately 30 million workers, or one in five Americans, are subject to a noncompete. Noncompetes are most common in agriculture jobs revolving around technology, engineering, and innovation, but are also prevalent in sales, management, finance, and creative roles.
Why Does the FTC Want to Ban Noncompetes?
According to the FTC, “Noncompetes are a widespread and often exploitative practice imposing contractual conditions that prevent workers from taking a new job or starting a new business. Noncompetes often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, being forced to relocate, being forced to leave the workforce altogether, or being forced to defend against expensive litigation.”
In this case, that also encompasses non-disclosure agreements (NDAs), non-solicitation agreements, and other restrictive covenants that function as noncompetes. The effects on individuals under such agreements can vary, but overall, the FTC finds them to have a negative impact.
“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” said FTC Chair Lina M. Khan. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”
The FTC predicts a 2.7% growth in new businesses, a yearly income growth of $524 per worker, and a decrease in healthcare costs by $194 billion in the next decade. In addition, they expect an increase in patents registered each year from 17,000 to 29,000 in the next 10 years.
It is important to note the FTC only has jurisdiction over for-profit entities, so the rule does not apply to nonprofit organizations. It also makes exceptions for financial institutions and individuals affected by the Packers and Stockyards Act.
What Do I Need to Know?
While the ban is blocked, the FTC is considering an appeal. So if you’re an ag business owner or human resource professional, there are a few key points to know if the ban eventually goes into place.
1. The FTC’s final rule allows current noncompete agreements for senior executives (defined as earning more than $151,164 annually and in policy-making positions) to stay in effect. However, it prohibits employers from creating or enforcing any new noncomplete agreements, even for senior executives.
2. Under the final rule, employers must provide notice to workers with an existing noncompete (other than senior executives who are bound by an existing noncompete) that the noncompete agreement will not be enforced against them in the future.
Steps to Take Moving Forward
1. Identify if noncompetes are used within your ag organization. If so, determine if any of them fall within the senior executive exclusion and which will be rendered unenforceable.
2. Notify the applicable employees that they will no longer be subject to the terms of their noncompete agreement. You are legally obligated to notify them, and the FTC provides language that meets their criteria for you to use, which can be found on their website in seven languages.
3. Adjust any points in the hiring process at which noncompetes are involved, as asking any new hires to sign noncompetes is prohibited.
4. To protect your trade secrets, you may want to consider having applicable employees sign a Non-Disclosure Agreement (NDA) to provide protection for proprietary and other sensitive information.
It’s important to know how a ban like this will affect you as an ag employer or hiring manager. Visit FTC.gov for more information.
