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FTC Banning Noncompete Clauses: Management Companies Should Take Notice

May 3, 2024

On April 23, 2024, the Federal Trade Commission (“FTC”) issued the Non-Compete Clause Rule which would impose a nationwide ban on noncompete agreements and clauses.[1] The Rule would not only prohibit most noncompete agreements in the future, but also most of the noncompete agreements predating the passage of the Rule.[2] This is an important development for those in the community association industry as management company employment agreements often include noncomplete clauses. This article is not intended to provide an exhaustive outline of the Rule, which exceeds five hundred pages, but rather to note some of the Rule’s broader effects which are sure to represent a change in the industry.

The Rule defines a “non-compete clause” as a “term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or conditions; or (2) operating a business in the United States after the conclusion of the employment that includes the term or condition.”[3] The FTC has determined to ban such clauses and render existing ones unenforceable, unless an exemption applies, under the position that non-compete clauses constitute unfair methods of competition. There are certain limited exceptions to the ban. For example, existing non-compete clauses as to “senior executives” could still be enforced under this Rule. The Rule defines a ”senior executive” as a worker earning more than $151,164 annually and who is in a policy-making position.[4]

The Rule also requires employers to notify workers who have existing non-compete clauses and are not exempt from the Rule that their non-compete clause will be invalid as of the effective date of the Rule. This must be in the form of “clear and conspicuous notice” to the worker by the effective date that the worker’s non-compete clause is no longer in effect and will not be, and cannot legally be, enforced against the worker.[5]

This is a substantial change on the national level. Like many states, South Carolina has not historically had a blanket rule prohibiting noncompete agreements.[6] However, the new nationwide ban would supersede state-level allowances. The Rule would take effect 120 days following its publication in the Federal Register, and it is scheduled to be published on May 7, 2024. That said, it is possible that the Rule’s implementation could be delayed by legal challenges from various entities, to include the U.S. Chamber of Commerce, which has already filed a lawsuit against the FTC in a Texas federal court.[7] In any event, all for-profit employers, including community association management companies should monitor and be prepared for the FTC’s Non-Compete Clause Rule.

Our attorneys at McCabe, Trotter & Beverly, P.C. are well-equipped and prepared to assist with your company’s response to the new Non-Compete Clause Rule and to answer any questions you may have.  Please contact us at (803) 724-5000 for further information.

Written by Christian Saville

McCabe, Trotter & Beverly, P.C. blogs and other content are for educational and informational purposes only. This is not legal advice and does not create an attorney/client relationship between McCabe, Trotter & Beverly, P.C., and readers. Readers should consult an attorney to understand how this information relates to their personal situation and circumstances. You should not use McCabe, Trotter & Beverly, P.C. blogs or content as a substitute for legal advice from a licensed attorney.

[1] https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes

[2] 16 CFR Part 910.

[3] § 910.1.

[4] Id.

[5] § 910.2(b)(1).

[6] See Palmetto Mortuary Transport, Inc. v. Knight Systems, Inc., 424 S.C. 444, 818 S.E.2d 724 (2018) (declining to create a blanket rule that a noncompete covenant is void as against public policy).

[7] Daniel Wiessner, US Chamber of Commerce sues FTC for ban on noncompete agreements, REUTERS, April 24, 2024, https://www.reuters.com/legal/us-ban-worker-noncompete-agreements-faces-lawsuit-major-business-group-2024-04-24/

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