My blog post below, on August 20, 2024, about the federal ban on Non-Competes was ONE DAY too early! Yesterday, the federal judge Texas invalidated the FTC’s Rule, stating the following in her decision:

“The Court concludes that the FTC lacks statutory authority to promulgate the Non-Compete Rule, and that the Rule is arbitrary and capricious. Thus, the FTC’s promulgation of the Rule is an unlawful agency action.  [The rule] is hereby SET ASIDE and shall not be enforced or otherwise take effect on September 4, 2024, or thereafter.”

It is possible the FTC will file an appeal to this decision, but for now, the Rule is dead.

MOVING FORWARD….

The law on Non-Competes reverts back to state law. In Arizona, Non-Competes are enforceable provided the restrictions are reasonable, narrowly drafted, and with terms that are no more restrictive than necessary to protect the employer's legitimate interests. They must be:

• Reasonable in duration
• Reasonable in geographic scope
• Reasonably related to the type of work the employee or contractor performed for your company

The Non-Compete restriction is not valid if it only serves the purpose of limiting or eliminating competition.

Regardless of the decision on the federal ban, now would be a great time to review your company's agreements and make updates if you believe the terms might not be enforceable if legally challenged. 

As always, I am available to assist --- just schedule time on my calendar with the appointment link below.

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8-20-2024 Blog:

A few months ago, I wrote a blog post regarding the Federal Trade Commission’s Final Rule to ban non-compete agreements that your business has with employees and contractors in nearly all cases. This article is posted on the Blog tab of the this website.

The Rule is scheduled to go into effect on September 4, 2024. 

Immediately after it was announced in April, there were lawsuits filed challenging the authority of the FTC to make such a rule. In Ryan LLC v. Federal Trade Commission, the U.S. District Court for the Northern District of Texas granted a preliminary injunction prohibiting the FTC from enforcing the Rule, but only against the specific plaintiff in the case, not on a nationwide basis. The Court is scheduled to make a final ruling by August 30, 2024 which will also decide a Texas lawsuit filed by the U.S. Chamber of Commerce. In contrast, the U.S. District Court for the Eastern District of Pennsylvania declined to issue a preliminary injunction in ATS Tree Services, LLC v. Federal Trade Commission, stating that it believes the Rule will ultimately be upheld. 

As of today, the FTC Rule will take effect in just a few weeks. In order to prepare for this, I recommend the following steps:

• Read the article on my website to understand the full scope of the Rule and the exceptions;
• Review all current agreements to determine if you have any employees or contractors subject to a non-compete restriction with your business;
• If so, determine if one of the exceptions applies to your situation; and
• Draft the required written notice that you must send to all employees or contractors under a current non-compete that, as of September 4, that restriction cannot and will not be legally enforced. 

This notice must be provided to all affected workers BEFORE September 4. 

(If you are an employee or contractor subject to a non-compete, you should receive a notice from your employer before September 4.)

If the above situation applies to you as a business owner, there are some steps you can take to protect your business even if you no longer have non-compete agreements. Consider:

• Adding a non-solicitation of customers provision to all new agreements;
• Amending current agreements to add a non-solicitation restriction - remember, the restrictions must be reasonable for the situation;
• Adding or enhancing the protection afforded by non-disclosure obligations for confidential and trade secret information; and
• Considering alternative restrictions, such as garden leave, for departing workers in key roles.

If the Rule is invalidated or stayed before September 4, Arizona law will continue to allow non-compete restrictions that are reasonable and no more broad than necessary for the specific situation to which they pertain. If your non-compete is unreasonable or overbroad, even without the federal ban in place, your restriction may not hold up if legally challenged by your worker.

Please take action before September 4 regarding any current non-competes in place so that you are not in violation of the federal Rule if it does become effective.

As always, I am available to assist with reviewing your current agreements, drafting a notice to your workers that explains the impact of the ban and what happens to their restrictions if the ban does not take effect, and amending your agreements going forward. You can schedule time on my calendar with the appointment link above.

NOTE: THIS ARTICLE IS FOR GENERAL INFORMATIONAL PURPOSES. IT DOES NOT CONSTITUTE LEGAL ADVICE, NOR DOES IT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. EACH SITUATION IS DIFFERENT. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE YOUR LEGAL RIGHTS, REMEDIES, AND DUTIES.

By Wendy M. Anderson, Esq.
Law Office of Wendy Anderson, PLLC

480-825-4509Contact Me Today