On April 23, 2024, the Federal Trade Commission issued a final rule to take effect in 120 days prohibiting most employee noncompete agreements.  The new rule would ban almost all noncompete agreements in effect and require companies to inform current and former employees that their noncompete agreements will no longer be enforced.

Exemptions under the new final rule include existing noncompete agreements covering senior executives, but employers will be banned from imposing any new noncompete agreements on their senior executives going forward.  In addition, noncompete agreements entered into as part of a business sale remain enforceable.  Significantly, industries the Federal Trade Commission does not regulate are exempt from the rule, including nonprofit organizations, airlines, banks, credit unions and insurance companies.

Most states, including Michigan, currently enforce noncompete agreements, but the final rule would override all state laws, regulations or orders that conflict with the Federal Trade Commission’s regulations.  It is highly likely that once the final rule is formally published, it will face legal challenges.

Employers should review all current and former employee noncompetes. The final rule renders noncompete arrangements unenforceable and requires employers to notify employees that they are no longer subject to their noncompete agreements.  Employers should consider alternatives to noncompetes including nonsolicitation, confidentiality, and nondisclosure agreements which cold broadly prohibit ex-employees from accessing or utilizing defined trade secrets or specific customer lists for a set timeframe after they depart from the company.

Despite any legal challenges the final rule may face, employers should still understand the impacts of the final rule and be prepared for the rule to potentially take effect in July 2024.  Contact your business attorney with Shinners & Cook, P.C. today to learn how to comply with the Federal Trade Commission’s new noncompete regulations.