What the FTC Non-Compete Rule
Means for Companies & Next Steps
MAY 8, 2024
TODAY’S PRESENTERS
Gregory Hoff
Assistant General Counsel, Director of Labor &
Employment Law and Policy
HR Policy Association
Ani Huang
Senior Executive Vice President, Chief Content Officer
HR Policy Association
President and CEO
Center On Executive Compensation
2
Jason C. Schwartz
Partner
Gibson, Dunn & Crutcher LLP
3
The Final Rule
• Blanket ban: prohibits all future non-compete agreements with all
workers.
• The rule is effective September 4
th
, 2024.
• Two exceptions:
◦ (1) existing agreements with “senior executives” can continue to be
enforced
– “senior executive” defined similarly but more narrowly than SEC’s definition
of “executive officer”
◦ (2) business sales
FTC NON- COMPETE RULE & NEXT STEPS
The Final Rule
• “Non-compete agreement” broadly defined:
◦ Any term or condition of employment that “prohibits...penalizes...or
functions to prevent a worker from” working elsewhere is prohibited.
◦ Likely prohibited:
– Forfeiture agreements, broadly written NDAs, non solicitations, or TRAPs
◦ Likely allowed:
– “Appropriately tailored” NDAs, non-solicitations, TRAPs
– Garden leave provisions
– Retention awards or other bonuses requiring repayment if the employee
leav
es
FTC NON- COMPETE RULE & NEXT STEPS
4
The Final Rule
• Notice for existing non-compete agreements:
◦ Employers are required to provide notice to all individuals (other than
qualifying senior execs) with existing non-compete agreements
– Must notify them that the agreements are no longer effective or enforceable
• Preemption
◦ The rule supersedes all less restrictive local and state non-compete laws,
but does not supersede laws that are more restrictive
FTC NON- COMPETE RULE & NEXT STEPS
5
Legal Challenges to the Rule
• Multiple lawsuits filed against the FTC claiming the FTC does not
have the authority to issue the rule
• Lawsuits pending in two federal district courts in Texas
◦ Same courts have previously thrown out joint employer rule, Biden EO
raising minimum wage for fed contractors
FTC NON- COMPETE RULE & NEXT STEPS
6
7
HRPA SURVEY RESULTS: IMPACT OF FTC NON- COMPETE BAN
NEARLY ALL USE NON-COMPETE PROVISIONS
Q: Does your company utilize 1) non-competes or 2) forfeiture-for-competition provisions in equity award,
severance or employment agreements in the U.S.?
8%
2%
26%
64%
No, we do not utilize non-competes or forfeiture-
for-competition provisions.
Yes, we utilize only forfeiture-for-competition
provisions.
Yes, we utilize only non-competes.
Yes, we utilize non-competes and forfeiture-for-
competition provisions.
93 RESPONSES
8
HRPA SURVEY RESULTS: IMPACT OF FTC NON- COMPETE BAN
MOST WILL CONTINUE ISSUING NEW NON-COMPETES
Q: As of right now, does your company plan to continue issuing non-competes until the rule’s effective date?
2%
0%
11%
88%
Other*
No, we are planning to stop issuing new non-
competes until the fate of the rule is certain.
Yes, but only if the rule is stayed (temporarily
suspended pending the legal challenge).
Yes, we will continue business as usual and
issue new non-competes until the effective
date.
69 RESPONSES
9
HRPA SURVEY RESULTS: IMPACT OF FTC NON- COMPETE BAN
97% WILL KEEP EXISTING NON-COMPETES FOR COVERED EXECUTIVES
Q: As of right now, does your company plan to keep existing non-competes for covered executives
as allowed by the rule?
0%
3%
97%
No, we likely won’t require tenured executives to
be bound by a non-compete while new
executives aren’t required to have them.
Yes, we will keep existing non-competes but
only for certain covered executives.
Yes, we will keep existing non-competes for all
covered executives.
69 RESPONSES
10
HRPA SURVEY RESULTS: IMPACT OF FTC NON- COMPETE BAN
MAJOR IMPACT TO TRADE SECRETS, COMPENSATION STRATEGY
Q: How do you think a total ban on non-competes would impact your talent or compensation strategy?
3%
13%
13%
50%
52%
67%
It will likely cause senior executives to defer joining the company while the rule is pending.
Other*
It will likely change the amount of confidential information shared with executives.
It will likely cause churn in certain roles/industries which will have a deleterious effect on the company.
It will likely cause the company to pay more through long-term equity, garden leave, retention awards or
increased use of employment agreements.
It will likely cause the company to more aggressively pursue clawbacks and forfeitures for allowable
reasons (NDA, non-solicit, trade secrets).
NOTE: Respondents could select more than one choice; totals may not equal 100%
•Could impact shareholder value if talent, innovation
is compromised
•Will likely impact our willingness to invest in
employee training
•Could make retirement rules more difficult to reach
*Other responses include:
66 RESPONSES
11
HRPA SURVEY RESULTS: IMPACT OF FTC NON- COMPETE BAN
OVER HALF AT LEAST CONSIDERING CHANGE TO SEVERANCE PRACTICES
Q: If you are unable to issue non-competes, would it change the way you think about severance or other
consideration for a covenant not to compete?
8%
17%
28%
47%
Yes, we would eliminate or greatly reduce
severance if we were unable to tie it to a
covenant not to compete
Yes, we would reduce severance (but only
moderately or slightly)
Other*
No, we would not change our severance
practices
• Will evaluate on a case-by-case basis, we
rely heavily on employment agreements
that lay out the specifics of severance
• May consider garden leave provisions
• We would include mitigation offsets for
severance
• We would consider reducing our severance
• Presently, no changes being considered
but it is a dynamic topic
*Other responses include:
69 RESPONSES
12
HRPA SURVEY RESULTS: IMPACT OF FTC NON- COMPETE BAN
ALTERNATIVES: NDAS, RETENTION, EMPLOYMENT AGREEMENTS, GARDEN LEAVE
Q: If you are unable to issue non-competes, what options are you considering to protect talent, confidential
information and other investments?
11%
16%
20%
23%
30%
31%
33%
39%
73%
Increased number of equity-eligible employees
Add or increase deferred compensation plans
Other*
Increased training for employees on their obligations under restrictive covenants that are still allowable
Increased vesting periods for equity grants
Required “garden leave”
Employment agreements
Targeted retention awards
Beefed-up NDAs, trade secret agreements, and non-solicit clauses
NOTE: Respondents could select more than one choice; totals may not equal 100%
• Include notice requirements in offer letters
• Use of commission re-capture and fee tails
• Increase physical and cyber security
monitoring
• Beefed-up retirement eligibility criteria
• Reduce number of equity-eligible
employees
*Other responses include:
69 RESPONSES
