As a reminder to our corporate clients, the new FTC rule banning non-compete agreements nationwide (except in limited circumstances) is slated to go into effect on September 4, 2024. As noted in prior articles, the FTC included an exception in its final rule for Senior Level Executives who sign a non-compete agreement before the rule goes into effect on September 4th. The final version of the FTC rule defines a Senior Level Executive as someone who (1) has “final authority to make policy decisions that control significant aspects of a business entity or common enterprise” and (2) earns at least $151,164.00 in total annual compensation (including salary, commissions, nondiscretionary bonuses, and other nondiscretionary compensation) during the preceding year. If your company has Senior Level Executives who would qualify for this exception and who are not already subject to a non-compete agreement, you have a very limited window between now and September 3, 2024 to have that Senior Level Executive sign a non-compete agreement. It is additionally important to be mindful of the fact that most other non-compete agreements will be deemed unlawful and unenforceable on September 4, 2024, barring a court issuing a stay of enforcement. When the new rule goes into effect, employers are required to notify affected employees that their non-compete agreements are no longer valid or enforceable. As the FTC specifically stated that this new rule would not prohibit an employer from enforcing the terms of a Garden Leave Provision, employers should consider revising their employment agreements to substitute existing non-competes with Garden Leave Provisions as it pertains to key employees. A Garden Leave Provision requires the employee to provide the employer with advanced notice of their intent to leave the company during which time the employee may not accept other employment and cannot publicly announce their departure. The employee stays on the employer’s payroll during the Garden Leave Period and the employer has the sole discretion to determine whether the employee will be expected to work during the notice period or merely stay home to tend to his or her garden. In this period before the new rule goes into effect, employers should be: (1) reviewing their contracts to ascertain which employees will be affected by this new rule; (2) determining whether to prepare new non-compete agreements related to Senior Level Executives; (3) determining whether to amend their contracts now to substitute non-compete provisions with Garden Leave Provisions for key employees; and (4) preparing the form notice that will need to be sent to affected employees once the new rule goes into effect.
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