UPDATE: FTC Non-Compete Rule Struck Down
On August 20, 2024, a federal district court struck down the Federal Trade Commission’s rule imposing a nationwide ban on non-competition agreements. This means that the rule will no longer go into effect on September 4, 2024. It is expected that the FTC will appeal the decision, but the rule will not be able to go into effect unless a higher court reverses the lower court decision.
Employers no longer need to issue any kind of notice that the rule was going to require. However, if employers have compiled information regarding the non-compete agreements currently in place and the contact information for employees subject to those agreements, that information should be saved for future use in case a notice becomes necessary under a new law or the FTC’s rule is reinstated on appeal.
Summary of Applicable Law
While the FTC regulation will no longer take effect, Minnesota employers remain constrained by the state law that went into effect on July 1, 2023. Under state law, a covenant not to compete entered after July 1, 2023, is void and unenforceable unless it falls within one of the following excepted categories: it was agreed to during the sale of a business or it was agreed to during an anticipated dissolution of a business. There are no other exceptions under the state law.
The Minnesota law is not retroactive, which means that non-competes entered prior to July 1, 2023, are not void under the state law.
Original Post on August 8, 2024 –
August 8, 2024: The Federal Trade Commission recently issued a regulation voiding most non-compete clauses, deeming them unfair methods of competition. While the State of Minnesota passed a law in 2023 that made void and unenforceable most covenants not to compete entered on or after July 1, 2023, the state law was not retroactive. However, the FTC’s rule is retroactive (making most non-competes previously entered with workers unenforceable) and places affirmative obligations on employers who entered certain non-competes. There is an exception for past non-competes entered with “senior executives” which is defined by the rule. And under both the state law and FTC regulation, new non-competes can be entered in connection with the sale of a business.
Affirmative Obligation – Notice Requirement: The FTC regulation requires employers who previously entered into non-competes that are now prohibited under the rule to send a notice to the worker by the effective date that the non-compete clause is unenforceable. The rule is set to go into effect on September 4, 2024. There have, however, been legal challenges to the rule since it was published. These lawsuits may or may not delay or prevent the rule from going into effect. Decisions in some of those cases are expected in late August. However, employers should be prepared for the possibility that the rule will become effective on September 4th.
The FTC provided a model notice that is contained at the end of this publication. The notice can be sent via mail, email, or text message via the worker’s current or last known contact information.
More information from the FTC, including a model notice, can be found on their website: https://www.ftc.gov/legal-library/browse/rules/noncompete-rule
If you have questions or need assistance understanding what your business should be doing between now and September 4th, please reach out to our employment law attorneys Christina Hopke and Roger Justin.