While many people are left wondering what the implications of the FTC noncompete ban will be, it’s also important to note that there are exceptions to this ban, and not everyone will be affected the same way, if at all.
In parts one through three of this series, we’ve focused mainly on the workers who are not exceptions to this ban. Today, we’re switching gears and covering the exceptions to the Federal Trade Commission’s ban on noncompete agreements.
If you missed parts one through three, find them here:
- Part 1: Noncompete Agreement Ban by FTC: What You Need to Know
- Part 2: Noncompete Alternatives: What To Do After the Ban
- Part 3: Noncompete Ban: Economic & Other Implications
Quick Recap: The FTC’s Noncompete Ban
The Federal Trade Commission issued a final rule to ban noncompete agreements in the United States, a move they expect to benefit workers, businesses, and the economy. The final ruling was made on April 23, 2024, and is set to take effect 120 days later (September 4, 2024).
According to the FTC’s estimates, this ban could increase new business formation by 2.7% per year, creating 8,500 additional new businesses. They also estimate it will increase earnings for the average worker by an extra $524 per year.
The FTC also predicts the ban will lower healthcare costs by up to $194 billion over the next ten years. Lastly, the final rule could also lead to an estimated average increase of 17,000 to 29,000 more patents each year for the next decade.
Critics of the ban believe its reach is too broad, affecting one in five American workers, equivalent to 30 million people.
Further, the US Department of the Treasury published research in 2016 that found that about 15% of workers who do not have four-year degrees are under noncompetes. 14% of these people make less than $40,000 per year.
Noncompete Ban Exceptions
As for the workers for whom this ban does not apply, the FTC predicts this is less than 0.75% of workers.
As small as this percentage might seem, it isn’t nothing.
If we use this 2023 estimate of the number of employed Americans as 161 million, 0.75% of that gives us over 1.2 million.
That means while noncompetes could be lifted from 30 million workers, there are still 1.2 million workers who, theoretically, could be exceptions to the ban. Realistically, that number is likely much smaller, as only some high-level executives are under a noncompete.
High-Level Executives and the Noncompete Ban
This exception applies to workers who made $151,164 or more in the previous year (or at least $151,164 when annualized if the worker was employed only part of the preceding year). They must also be in policy-making positions or have policy-making authority.
The FTC defines policy-making positions as a business entity’s:
- President
- CEO or the equivalent
- Any other officer who has policy-making authority
- Any other natural person with policy-making authority for the business entity is similar to an officer with policy-making authority.
An officer can be a:
- President
- Vice president
- Secretary
- Treasurer
- Principal financial officer
- Comptroller
- Principal accounting officer
- Any natural person who routinely performs corresponding functions concerning any business entity, whether incorporated or unincorporated.
As for policy-making authority, they define this as:
- Having final authority to make policy decisions that control significant aspects of a business entity or common enterprise
- Not including authority limited to advising on or exerting influence over policy decisions or having final authority to make policy decisions for only a subsidiary or affiliate of a common enterprise.
What About New Noncompete Agreements?
The Federal Trade Commission explains the ban’s exceptions while emphasizing that the exceptions do not apply to ANY worker (whether a high-level executive or not) after the ban takes effect.
Exceptions to the noncompete ban only apply to those under existing noncompetes before the ban’s effective date.
The FTC Noncompete Ban: What’s Next?
Although the ban is set to take effect in September, there has been pushback.
One example is a Texas federal judge partially blocking the FTC’s noncompete ban in the case of Ryan, LLC v. The Federal Trade Commission.
The first to do so, a Texas federal judge prohibited the ban from taking effect against the named plaintiff and intervenors in the Ryan lawsuit. The Court also declined to issue a nationwide ban to non-parties.
Ultimately, this means the noncompete ban remains set to take effect on September 4th for all employers except those who are named parties, plaintiffs, or intervenors in the Ryan lawsuit.
Some believe this is a sign of similar things to come, but unless and until we are certain whether a noncompete ban will go into effect, it’s important to prepare however you can.
Speak With a Denver Business Lawyer Today
Consult with one of the Denver business lawyers at Contiguglia Law today. We can discuss your current noncompetes, alternatives to noncompetes, and other critical considerations for your business agreements.
Request your free strategy session here.
Did you learn a lot about the noncompete ban in this article?
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- LLC Operating Agreement: Purpose, Definition, and Importance
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