The Federal Trade Commission (FTC) on Tuesday issued a final rule banning non-compete agreements that prevent workers from working for a competitor or starting a competing business (the Rule). The Rule requires employers to provide notice to workers, except for senior executives, who are bound by an existing non-compete agreement, that such agreements are no longer enforceable.
The Rule adopts a two-pronged test for determining if an employee is a "senior executive":
- whether an employee is in a policy-making position; and
- whether the employee earns total annual compensation of at least $151,164.
Employers are banned from entering into, or attempting to enter into, any future non-compete agreements, with either employees or senior executives, except for non-compete agreements entered into pursuant to the bona fide sale of a business.
The final Rule is set to be become effective in 120 days and would impact an estimated 30 million workers. However, a lawsuit challenging the Rule was filed immediately after the Rule's issuance on Tuesday. More challenges are expected.
Bracewell will continue to monitor, and provide updates on, this legal development.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.