The FTC’s proposed ban on non-competes seems to be off the table for now. Whether you see this as good or bad news depends on your perspective.
What Business Owners Need to Know:
- No Action Required: The September 4th notification deadline no longer applies. Your non-competes remain valid as long as they comply with relevant state laws.
- State Law Compliance: Businesses in states like Massachusetts must still adhere to specific state laws, such as the Massachusetts law effective since October 2018.
What Happened?
After the FTC issued its final rule banning non-competes, a lawsuit was filed in a Texas federal court. The judge initially suspended the rule’s deadlines, applying this suspension only to the lawsuit’s plaintiffs. This week, the judge struck down the rule, stating that her decision applies nationally.
While the FTC can appeal, it would go to the 5th Circuit, a court known for its business-friendly rulings. Even if the case reaches the Supreme Court, the current makeup of the Court suggests it would likely uphold the Texas judge’s ruling.
The FTC may attempt to revise the rule, but any changes won’t take effect in time to impact businesses before September.
Massachusetts Non-Compete Law
Since October 2018, Massachusetts law applies only to non-competes executed after that date. The law includes a “garden leave” provision, requiring employers to pay employees during the non-compete period, equivalent to their salary for the length of the period of the non-compete term, or another agreed-upon value.
However, the “other agreed-upon value ” is vague and untested in court. Many legal advisors recommend avoiding non-competes altogether, opting instead for robust non-solicitation and confidentiality agreements, which remain legal and effective.
Non-compete clauses during employment are still allowed under Massachusetts law but end when employment does. Non-competes between business partners or in the sale of a business remain valid and crucial.