TheCorporateCounsel.net

Here’s important news that Meredith blogged yesterday on CompensationStandards.com (also see John’s blog on DealLawyers.com about the M&A aspects): Yesterday at an open meeting, the FTC voted 3-2 to approve an expansive ban on the use of non-competes. The WSJ reported that this was particularly historic rulemaking.

[It] marks the first time in over 50 years that FTC officials have issued a regulation to mandate an economywide change in how companies compete. The commission has historically operated like a law enforcement agency, investigating and suing individual companies over practices or deals deemed to violate the law.

Proposed in January 2023, this rulemaking received upwards of 26,000 comments. Here are the 570-page final rule and fact sheet. This excerpt from the fact sheet summarizes the basics:

– The final rule bans new noncompetes with all workers, including senior executives after the effective date.

• Specifically, the final rule provides that it is an unfair method of competition—and therefore a violation of Section 5 of the FTC Act—for employers to enter into noncompetes with workers after the effective date.

– For existing noncompetes, the final rule adopts a different approach for senior executives than for other workers. For senior executives, existing noncompetes can remain in force. Existing noncompetes with workers other than senior executives are not enforceable after the effective date of the final rule.

• Fewer than 1% of workers are estimated to be senior executives under the final rule.
• Specifically, the final rule defines the term “senior executive” to refer to workers earning more than $151,164 annually who are in a “policy-making position.”

While not addressed in the fact sheet, the final rule contains an exception (expanded from the rule’s proposed form) for non-competes entered into in connection with a bona fide sale of a business entity. John described this exception in today’s blog on DealLawyers.com.

– Liz Dunshee