Real World Impact: Making good on her promise to make a ruling on the FTC Noncompete Rule on or before August 30, 2024, United States District Judge Ada Brown granted a motion for summary judgment that sets aside the FTC Noncompete Rule and prohibits its enforcement nationwide. This means employers should go "pencils down" and stop preparing the notices we suggested here. The FTC Noncompete Rule is no longer a concern.
What does this mean for employers?
While this is a victory for employers using noncompete agreements with current and former employees, this opinion does not necessarily mean your company's noncompete agreements and other restrictive covenants are valid and enforceable under applicable state law. We expect continued scrutiny by the courts of the enforceability of these agreements and more state restrictions on these agreements in the future.
So what should employers do now?
- Enjoy your Labor Day weekend! You deserve it!
- Review your restrictive covenants at least annually to make sure they are valid and enforceable in the states in which your company operates or has employees and consider whether you absolutely need a true noncompete provision or whether you can better protect your company's interests with well-tailored nonsolicitation provisions. These restrictive covenant agreements should be narrowly drafted to protect your confidential information and other legitimate business interests. Remember, the shorter the term and the smaller the geographic region, the more likely these agreements will be enforced.
- Consider doing away with "all customers" and "all employees" language in your nonsolicitation clauses and limit those clauses to only those customers or employees with whom the employee worked or about whom they received confidential information.
- Review your off-boarding and IT procedures to make sure you have a plan in place when an employee departs to protect your customer relationships and your confidential business information.
- If you offer stock option grants and use other benefit documents that contain noncompete provisions, make sure that a litigation attorney who is experienced in noncompete enforcement reviews the language of these provisions as well. We often see overly broad (and unenforceable) language in these types of documents' noncompete provisions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.