On April 23, 2024, the United States Federal Trade Commission (FTC) announced the finalization of a significant rule governing noncompete agreements in the workplace. This rule has implications for businesses, including those in the deathcare profession represented by the International Cemetery, Cremation, and Funeral Association (ICCFA).
The final rule, effective 120 days from publication in the Federal Register (expected around Labor Day 2024), introduces key provisions impacting noncompete agreements:
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Complete Ban on New Noncompete Agreements: The rule prohibits the use of new noncompete agreements with all workers, including senior executives, after the effective date.
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Exception for Senior Executives: Existing noncompete agreements with senior executives, defined as employees earning more than $151,164 per year in a policy-making role, remain enforceable. However, new noncompetes for senior executives will not be allowed.
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Exception for Business Sales: An exemption allowing for noncompete agreements in the context of bona fide business sales is provided, with no requirement for a minimum ownership percentage.
Key Takeaways from the FTC Noncompete Rule:
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Existing noncompete agreements will be void as of the effective date, and employers must notify current and former employees accordingly.
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Noncompete agreements with senior executives meeting the defined criteria will remain in force.
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No new noncompete agreements, including with senior executives, can be entered into after the effective date.
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The rule does not cover non-solicitation provisions or prohibit competing during employment.
Next Steps and Considerations:
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The final rule’s effective date will be determined upon publication in the Federal Register, allowing 120 days for implementation.
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Anticipate legal challenges to the rule, which could delay implementation.
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Congressional action may be pursued to address any perceived limitations of the rule.
What Businesses Should Do:
Businesses are advised to monitor developments and await clarification before taking action. Considering the new rule’s restrictions, non-solicitation provisions may be an alternative to consider.
The ICCFA submitted comments on behalf of its members, advocating for the exemption in business sales that the FTC ultimately granted. This exemption allows for noncompete agreements in business sales without requiring a minimum ownership percentage.
The ICCFA will continue to monitor updates and provide guidance to its members as the implications of the FTC’s noncompete rule unfold.