There are a lot of questions surrounding the recent FTC’s Final Rule, which essentially bans most post-employment non-compete agreements. Below is a summary of the Final Rule, and its application to veterinary practice owners, employees and workers, as well as the latest developments.
Introduction
On April 23, 2024, the FTC announced its Final Non-Compete Clause Rule (“Final Rule”), which bans post-employment non-compete agreements between an employer and employee. The Final Rule becomes effective 120 days after being published in the Federal Register (Effective Date).
The Final Rule was published in the Federal Register and is scheduled to take effect September 4, 2024
Key Points
The Final Rule prohibits an employer from entering into, or attempting to enter into, a non-compete agreement with a “worker” (including, e.g., employees and independent contractors) or representing that a worker is subject to a non-compete agreement.
The Final Rule allows employers to maintain existing non-compete agreements with “senior executives,” (those with over $151,164 in annual compensation and in a policy making position for the business), but bars an employer from entering into, or attempting to enter into, a non-compete agreement with a senior executive after the Effective Date of the Final Rule.
The Final Rule does not apply to non-compete agreements that were entered into by a person pursuant to a bona fide sale of a veterinary practice.
The Final Rule does not prohibit employers from enforcing non-compete agreements where the cause of action related to the non-compete agreement accrued prior to the Effective Date of the Final Rule.
The Final Rule further provides that it is not an unfair method of competition to enforce or attempt to enforce a non-compete or to make representations regarding a non-compete agreement where a person has a good-faith basis to believe that the Final Rule is not applicable.
The Final Rule purports to supersede any state law, regulation, or order to the extent that the state law is inconsistent with the FTC rule.
The Final Rule requires an employer to provide clear and conspicuous notice to workers subject to a prohibited non-compete, in an individualized communication, that the worker’s non-compete agreement will not be, and cannot legally be, enforced against the worker.
The employer must provide notice by the Final Rule’s Effective Date by hand-delivery, by mail at the worker’s last known street address, by email, or by text message.
The Final Rule bans almost all non-compete agreements between employers and workers, but does not explicitly ban non-disclosure agreements, customer non-solicitation agreements, or employee non-solicitation agreements.
Recent Decision
On July 3, 2024, a federal court in Texas, partially blocked the U.S. Federal Trade Commission (FTC) non-compete ban from taking effect. The court stated that the FTC, which enforces federal antitrust laws, lacked the power to adopt broad rules prohibiting practices that the FTC deems unfair methods of competition.
However, the court denied the request to block the rule nationwide. The court is expected to issue a final ruling by August 30, 2024, just a few days before the FTC non-compete ban is set to take effect.
Summary
It should be noted that the Final Rule may rest on questionable legal authority, and it is expected that the Final Rule will continue to face legal challenges under the Administrative Procedure Act. At this point and time, it is strongly recommended that veterinary practice owners, employees and workers wait and see how the legal challenges will proceed over the next few weeks. The FTC final rule is very complex, and this particular summary only outlines some specific provisions of the Final Rule.
All veterinary practice owners, employees and workers should continue to monitor the developments relating to the Final Rule.
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