Author: Christopher L. Nuland, JD
On April 23, 2024, the Federal Trade Commission issued its Final Rule on worker restrictive covenants. Arguing that such non-competes are an inherent violation of Section 5 of the FTC Act as an “unfair method of competition,” and that the elimination of such barriers would save $74-194 billion over the next ten years, the new FTC Rule (16 CFR Part 910) is scheduled to become effective on September 4, 2024. Restrictive covenants entered into after that date will be invalid, and non-competes entered into before that date may only be enforced if the worker is a “senior executive,” defined as a worker making more than $151,164 per year who also has a “policy making position.”
Reaction to the announcement was immediate, as three lawsuits seeking to enjoin enforcement of the new law were instantly filed. The lawsuits are based upon three legal theories, to wit, that the new rule is arbitrary and capricious, is not within the scope of the FTC’s authority under the FTC Act, and is a violation of Article I, section 9 of the U.S. Constitution. If any of the three courts do issue an injunction, the new rule will not go into effect, and all parties fully expect that the issue ultimately will be settled by the U.S. Supreme Court.
Assuming that the new Final Rule does go into effect (which is highly questionable), employers would be required to notify existing workers who are not senior executives that their non-competes will not be enforced. That being said, employers are not without tools to protect their interests. According to the FTC Press Release (April 23, 2024), employers may still enforce “concurrent” non-competes (prohibiting employees from working for competitors during their term of employment), as well as post-employment bans on the disclosure of trade secrets and bans on solicitation of customers and referral sources.
The question is often posed to me as to whether I believe that the FTC rule will ever become effective. While I uniformly tell clients to prepare for the new rule, enforcement of the new law faces several hurdles, both legal and political. From a legal perspective, it is likely that at least one judge, somewhere in the United States, will find the new law unconstitutional and enjoin its enforcement until the Supreme Court can ultimately decide the issue, which is unlikely to happen before the Spring of 2025. From a political perspective, many observers believe that a second Trump administration would repeal the Final Rule in order to protect the interests of business.
In either event, the Aesthetic Society will be tracking events in this ongoing saga and will keep its members informed as events transpire. In the meantime, should members have any questions, please feel free to contact the author at [email protected].