What Steps Employers Should Consider as FTC Noncompete Ban Effective Date Nears – and Legal Challenges Fail to Halt It

As reported in prior Alerts (on January 6, 2023April 19 and 23, 2024; and July 3 and 24, 2024), after initially proposing the rule in January 2023, in April 2024 the Federal Trade Commission (FTC) voted 3-2 to approve a final rule:

  • Banning noncompete agreements with virtually all workers 120 days after publication in the Federal Register (i.e., on September 4, 2024);
  • Invalidating existing noncompetes with all workers except senior executives; and
  • Requiring employers to send a clear and conspicuous notice to affected workers, by the effective date, that the worker’s noncompete clause will not and cannot be legally enforced.

Legal challenges to the noncompete ban have, thus far, been unsuccessful in securing an order enjoining, staying and/or invalidating the noncompete ban for all employers.

Read the full Alert on the Duane Morris LLP website.

Pennsylvania Federal Court Denies Injunction to Halt FTC’s Ban on Noncompetes

As reported in our prior Alert, on April 23, 2024, the Federal Trade Commission (FTC) voted 3-2 to approve a final rule:

  • Banning noncompete agreements with virtually all workers 120 days after publication in the Federal Register (i.e., on September 4, 2024);
  • Invalidating existing noncompetes with all workers except senior executives; and
  • Requiring employers to send a clear and conspicuous notice to affected workers, by the effective date, that the worker’s noncompete clause will not be, and cannot legally be, enforced.

At least three challenges to the noncompete ban have been filed in federal courts since that time, but none have yet succeeded in halting the ban nationwide. As reported in our recent Alert, on July 3, 2024, in the Ryan lawsuit, the U.S. District Court for the Northern District of Texas enjoined the FTC from enforcing its noncompete ban and stayed the ban as to the parties to that lawsuit, but refused to issue a nationwide injunction or stay that would apply to other employers. On the heels of the decision in Ryan, on July 23, 2024, the U.S. District Court for the Eastern District of Pennsylvania, in ATS Tree Services, LLC v. Federal Trade Commission, et al., denied the plaintiff’s motion seeking a nationwide injunction and stay, dealing a further blow to efforts to halt the noncompete ban.

Read the full Alert on the Duane Morris LLP website.

Minnesota Joins the Ranks of States Banning Employee Noncompetition Covenants

Minnesota is now the fourth state in the U.S. to ban noncompetition covenants in agreements between employers and employees, under a bill signed into law by Governor Tim Walz on May 24, 2023. Similar statutes already exist in California, Oklahoma and North Dakota.

When Does the Law Take Effect?

The law is effective immediately, but only applies to contracts and amendments entered into on or after July 1, 2023―i.e., the law does not apply to covenants not to compete entered into prior to July 1, 2023.

Read the full Alert on the Duane Morris LLP website.

District of Columbia Walks Back Noncompetition Ban in Favor of Income-Based Threshold

In our Alerts published January 22, 2021February 17, 2021, and March 17, 2022, we detailed the Washington, D.C., Ban on Non-Compete Agreements Amendment Act of 2020. Among other provisions, had it taken effect, the 2020 Act would have rendered void and unenforceable any agreement prohibiting an employee from working for a competitor following employment and while the employee is still employed by the employer. The ban on so-called in-term restrictive covenants―standard provisions that prevent an employee from simultaneously working for a competitor of his or her employer―would have been the first of its kind.

Read the full Alert on the Duane Morris LLP website.

Colorado Creates Income-Based Threshold for Noncompetition and Customer Nonsolicitation Covenants

A new Colorado law effective August 10, 2022, voids noncompetition and customer nonsolicitation covenants with certain employees who work or live in Colorado, depending on their level of compensation. The new law potentially subjects noncompliant employers to significant penalties and voids any provision in violation of the statute.

HB 22-1317, signed into law on June 8, 2022, amends Colorado’s existing noncompetition statute, C.R.S. § 8-2-113, for agreements entered into or renewed on or after August 10, 2022. The new law comes only months after Colorado enacted a criminal statute making violations of the state’s noncompetition statute a Class 2 misdemeanor punishable by 120 days in jail, a fine up to $750 or both.

Read the full Alert on the Duane Morris LLP website.

Washington, D.C., Again Postpones Its Ban on Noncompetes

In our Alerts published January 22 and February 17, 2021, we detailed the various provisions of the broad, new Washington, D.C., Ban on Non-Compete Agreements Amendment Act of 2020 (the Act), slated to take effect once the District of Columbia Council funded the law through the appropriations process. Among other provisions, the Act would render void and unenforceable any agreement prohibiting an employee from working for a competitor following employment and while the employee is still employed by the employer. The ban on so-called in-term restrictive covenants―standard provisions that prevent an employee from simultaneously working for a competitor of his or her employer―would be the first of its kind in the country.

Read the full Alert on the Duane Morris LLP website.

Colorado Enacts Legislation Authorizing Potential Criminal Liability for Employers that Violate State Noncompetition Statute

A new Colorado law, effective March 1, 2022, will make violations of the state’s noncompetition statute a Class 2 misdemeanor punishable by 120 days in jail, a fine up to $750, or both.

Colorado’s noncompetition statute, C.R.S. § 8-2-113, prohibits the use of “force, threats, or other means of intimidation to prevent any person from engaging in any lawful occupation at any place he sees fit.” Covenants not to compete restricting the right of any person to receive compensation for performance of skilled or unskilled labor for any employer are void under the statute unless they satisfy certain exceptions.

Read the full Alert on the Duane Morris LLP website.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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