How Will the FTC Rule Impact Non-Compete Agreements in WV?

On April 23, 2024, the FTC issued a much-anticipated and debated final rule following a 3-2 vote that claims non-compete clauses and agreements violate Section 5 of the FTC Act, which prohibits unfair or deceptive acts in commerce. Unless challenges are successful, the non-compete rule will take effect 120 days after it is published in the Federal Register. This places the timeframe for implementation in late August of 2024. In recent interviews, FTC Chairperson, Lina Khan has indicated that it may be implemented in the beginning of September 2024.

The FTC estimates that approximately 30 million workers are subject to a non-compete agreement. The FTC argues that the final rule will lead to new business formation, growing by 2.7 percent per year, which results in more than 8,500 additional new businesses being created each year. It also anticipates increases in worker earnings, lower health care costs, and increases in patent filings over the next 10 years because of the final rule.

Groups like the US Chamber of Commerce argue, however, that reasonable non-compete agreements protect investments in employees and training as well as sensitive company data and information. These groups believe the FTC is overstepping in making this ruling, setting a dangerous precedent for future decisions regarding regulation.

While the courts consider the legality of the issue, employers in WV and throughout the country should take steps to prepare. A West Virginia employment law attorney, like the ones at Jenkins Fenstermaker, PLLC in Huntington, WV, can assist and counsel employers through this uncertainty.

What Employers Need to Know about the Federal Non-Compete Ban

The rule issued by the FTC prohibits any entities under the jurisdiction of the FTC from enforcing non-compete agreements that are currently in effect for all employees except “senior executives,” a term narrowly defined by the FTC. After implementation, the rule bans non-compete agreements for all employees in organizations subject to FTC regulation.

Employers will not be required to revise existing contracts and agreements to remove non-compete clauses. However, they will be required to notify all impacted employees—by mail, phone, email, or text message—that non-compete agreements previously signed are no longer valid when the rule takes effect.

WV currently protects the right to enforce reasonable non-compete agreements. However, this federal rule would override state laws, including WV’s, that are less restrictive while maintaining any provisions of laws in states that have more restrictive rules in place.

Exceptions to the FTC Non-Compete Ban

Non-compete agreements entered by senior executives before the rule takes effect will remain valid if the employee meets the definition set forth by the FTC. The rule defines a senior executive as an employee who meets these criteria:

• The employee makes more than $151,164 per year; and
• The person serves in a policy-making position in the organization.

The rule also exempts non-compete agreements entered pursuant to the bona fide sale of a business. Causes of action already in progress before the rule takes effect are not subject to the rule, and a good faith clause protects those who reasonably believe the rule does not apply.

These are the only exceptions included in the FTC’s Non-Compete Clause Rule. However, organizations—including some banks and nonprofit organizations—that do not fall under the jurisdiction of the FTC will not be subject to its requirements.

If you are unsure if your business and specific employees are subject to the provisions of the federal non-compete ban, it is wise to consult with a WV employment law attorney who is up-to-date on the current situation and tracking changes as they occur.

Alternatives to Non-Compete Agreements in WV

Non-compete agreements help businesses protect their investment in employees and keep proprietary information and trade secrets out of the hands of competitors. The FTC argues that businesses can protect their investment in their workforce by improving worker pay, benefits, and conditions. In the rule, the Commission also notes existing laws that are designed to protect company assets, like the Uniform Trade Secrets Act (UTSA), the Defend Trade Secrets Act (DTSA), and the Economic Espionage Act of 1996.

WV employers should prepare for the potential implementation of a federal non-compete ban by reviewing and revising their employment policies and contracts. Additional provisions in employment contracts may help businesses retain some of the protections that have previously been included in non-compete agreements. Non-disclosure and non-solicitation agreements may also be useful, and severability clauses can prevent full agreements from being invalidated by the inclusion of terms that are no longer enforceable.

Consult with a WV Employment Law Attorney

At Jenkins Fenstermaker, PLLC, we follow regulatory changes like the federal non-compete ban closely so we can provide the best legal counsel to help clients remain compliant while protecting their interests. Gary A. Matthews, a West Virginia employment law attorney, and the team at Jenkins Fenstermaker are here to help businesses and other entities determine their next steps and take action to prepare for the changes possibly ahead related to non-compete agreements in WV. Contact Gary by calling (304) 523-2100 or completing the law firm’s online contact form.