News

The Noncompete Rule

On April 23, 2024, the Federal Trade Commission (“FTC”) voted 3-2 to adopt a final rule that constitutes a comprehensive ban of noncompete agreements, both existing and future (“Noncompete Rule”).

The FTC derives its authority through a claim that it is an unfair method of competition for employers to enter into noncompete agreements with workers. However, as of the day following the FTC vote there have already been two lawsuits filed challenging the legality of the Noncompete Rule. There are likely to be more challenges, and the best strategy for employers and those bound by noncompete agreements is to remain patient while these challenges play out.

 With that said, here is an outline of the Noncompete Rule:

• The Noncompete Rule becomes effective 120 days after it is published in the Federal Register (“Effective Date”). This has not yet happened, and when it will be published is unclear.
• On the Effective Date, no existing noncompete agreements or clauses can be enforced unless the person bound by them is a “senior executive” or is subject to one of the exceptions described later in this article.
  • A senior executive is defined as someone who makes policy decisions that control significant aspects of the business and receives annual compensation of at least $151,164.
• As of the Effective Date, no new noncompete agreements can be entered into, including with a senior executive, unless the worker fits within one of the following exceptions:
  • The seller of a business, whether through sale of the person’s ownership interest in a business entity, or the sale of all or substantially all of a business entity’s operating assets.
  • The parties have a franchisee-franchisor relationship.
  • These exemptions also apply to noncompete agreements entered into prior to the Effective Date.
• Prior to the Effective Date, a company must provide any worker with whom it has entered a noncompete agreement with written notice, either hand-delivered in person or via mail, email, or text message, stating that as of the effective date the worker’s non-compete clause will not be, and cannot legally be, enforced against the worker.
• The Noncompete Rule does not have any effect on non-solicitation and confidential information agreements.
• The Noncompete Rule does not apply to non-profit entities.

We will monitor challenges to the Noncompete Rule. Please don’t hesitate to reach out to Gielow Groom Terpstra & McEvoy with any questions you have regarding this matter.

GGTM Law

We are a client-centric boutique law firm in Muskegon, Michigan, comprised of experienced Muskegon attorneys committed to serving the legal needs of a wide variety of businesses and individuals in Muskegon, Grand Rapids, Grand Haven, Spring Lake, Holland, throughout West Michigan, and beyond.