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Beware the FTC’s noncompete model notice language

Staffing Industry Review

Beware the FTC’s noncompete model notice language

George M. Reardon
| June 3, 2024
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In April, I wrote in a Staffing Stream article a general description of the Federal Trade Commission’s new rule on noncompete agreements and a list of action items for staffing firms to deal with the rule. One issue that the article did not address in detail is the model notice language the FTC provides for employers to use in notifying workers of the new noncompete rule’s effects before its effective date (Sept. 4, as of this writing).

Approach With Caution

In providing the language, the FTC offers employers a “safe harbor” for using it, even mentioning how easy it will be to “cut and paste” the FTC’s text. However, the language actually overstates the meaning of the rule — and the “safe harbor” is anything but safe.

The FTC “Loyalty Oath”

The model notice language would have employers tell workers in writing that, after the effective date, it will be “unlawful” for employers to enforce noncompetes. It also requires employers to separately promise that they “will not enforce” them.

The FTC does not make law, and its rule-making powers are much more limited than those of other federal agencies. As an administrative pronouncement, the rule may have influence over what is lawful or unlawful, but it also may be modified or overturned by Congress or the courts. It does not authoritatively and permanently make noncompetes “unlawful.”

The actual notice mandate requires employers to tell workers that “the worker’s noncompete clause will not be, and cannot legally be, enforced against the worker.” No other regulation requires the regulated parties to declare their agreement with the validity or legality of the regulation.

If employers provide the FTC’s model language to employees, they may later, if the rule is cut back, be deemed to have voluntarily and irrevocably waived future enforcement of their contractual noncompetes. It may be worth some risk for employers to avoid or modify this “loyalty oath” aspect of the notice. A truthful notice to workers would say that “it is the FTC’s opinion that noncompetes are unenforceable.” Employers can then disclose that they may intend to comply with the rule as long as and to the extent that it continues in force.

In-Term Noncompetes

The rule and its accompanying commentary ban noncompete clauses only in post-employment situations. It applies no ban, notice mandate, or declaration of unfair methods of competition with respect to restrictions on competition during a worker’s employment.

However, the model notice language makes no distinction between competition during employment and competition after employment. It says flatly that “after the effective date, you [the worker] may seek or accept a job with any company or any person – even if they compete with us [the employer].” It also says flatly that “after the effective date, you [the worker] may run your own business, even if it competes with us [the employer].” These statements lack any reference to the “after the employment” condition of the bans, which could leave companies no recourse should an employee be found moonlighting for the competition.

As with the “loyalty oath” problem, any employer that uses the model notice language risks later being deemed to have voluntarily and irrevocably waived enforcement of its in-term noncompete. That exposure would create a “fox in the henhouse” risk to employers’ business and customer goodwill.

Where We Stand Now

The rule’s original effective date was Sept. 4. Courts may stay (delay) the effective date while the rule is being challenged in several cases. After those cases are resolved at the trial court level, even more delays may come from appeals and reviews in federal circuit courts and the US Supreme Court. Staffing firms should follow the progress of this issue and seek legal counsel on how to navigate it.