On 23 April 2024, the Federal Trade Commission (FTC) voted 3-2 to approve a rule that will prohibit for-profit employers from either entering into non-compete clauses with workers or enforcing existing non-compete clauses against most workers (the Non-Compete Rule). Initially proposed in January 2023 (and discussed here), the Non-Compete Rule's impact on asset managers will be significant if and when it becomes effective, which is currently scheduled to be in August 2024.
Key Takeaways for Asset Managers:
- Applies to employees and independent contractors, although employers will be permitted to enforce existing non-compete clauses against "senior executives" serving in a "policy-making position" with an existing noncompete and total compensation over US$151,164.
- Defines a "noncompete clause" as a term or condition of employment that prohibits or otherwise penalizes a worker, post-employment, from (i) seeking or accepting work in the US; or (ii) operating a business in the US.
- Does not prohibit either traditional non-solicits of customers or employees or base level confidentiality or non-disclosure agreements.
- Requires employers to send a notice to workers by the effective date informing them that any non-compete clause is not enforceable against them.
State of Play—Will the Non-Compete Rule Survive?:
- Two lawsuits challenging the Non-Compete Rule, one by the US Chamber of Commerce, have already been filed in federal court in Texas.
- The Non-Compete Rule was approved by a party line vote and there is speculation that a Republican presidential administration would seek to overturn the Non-Compete Rule.
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