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Today the Federal Trade Commission’s (“FTC”) final rule banning noncompetition agreements was <a href="https://www.govinfo.gov/content/pkg/FR-2024-05-07/pdf/2024-09171.pdf">published in the Federal Register</a> (the “Final Rule”). This publication date is important because it starts the 120-day clock for when the rule becomes effective (and enforceable)—i.e. Wednesday, September 4, 2024 (the “Effective Date”). As we noted in our prior <a href="https://www.michaelbest.com/Newsroom/338611/FTC-Bans-Non-Compete-Agreements">Client Alert</a>, the Final Rule bans any new non-competes with “workers” or “senior executives” on or after the Effective Date, requires employers to notify “workers” of the invalidity of any existing non-compete provisions in any agreements by the Effective Date, but allows for existing noncompete agreements to continue for all current “senior executives.”

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Within 24 hours of the FTC voting to approve the Final Rule, several entities including <a href="https://files.lbr.cloud/public/2024-04/Ryan.pdf?VersionId=0yu9qPkQFUOJ5XXAaZvtgXK4EzWprx7N">Ryan, LLC</a>, the <a href="https://www.uschamber.com/assets/documents/Complaint-Chamber-v.-FTC-E.D.-Tex.pdf">United States Chamber of Commerce and the Business Roundtable</a> filed lawsuits against the FTC in the Federal Court seeking injunctions to postpone the Effective Date and to invalidate the Final Rule. Additional lawsuits have been filed, and are anticipated to be filed, by other interested parties. The lawsuits argue, among other things, that the FTC does not have the authority to create such a ban and that it has exceeded its legislative mandate from Congress in instituting the Final Rule.

Employers may continue to wait and see what will happen given that the Final Rule will not be effective until the beginning of September 2024, the current legal challenges may result in injunctions extending that timeline, and/or the Final Rule may be invalidated all together.

However, as we noted in our original <a href="https://www.michaelbest.com/Newsroom/338611/FTC-Bans-Non-Compete-Agreements">Client Alert</a>, there are certain steps employers can take now to prepare for the possibility of the Final Rule going into effect should it survive legal challenges, including:

Begin gathering all potentially covered agreements (including sale/purchase of business agreements, NDAs, IP ownership agreements, non-competition, and non-solicitation agreements) to determine which are covered by the Final Rule.

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Prepare required notices now so that employers are ready to send them before the deadline (which may be delayed by the courts).

Modify existing agreements as appropriate for future use in the event the FTC Rule remains in effect.

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Employers should continue to monitor progress of the legal challenges to the Final Rule so that they are prepared to address its requirements if or when they finally do take effect.

If you have any questions, please contact your Michael Best attorney.

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Effective Date Of the Non-Compete Ban Identified – September 4, 2024

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