Exceptions to the Ban
Present non-compete agreements for “senior executives” can stay in place, the FTC stated, though no new non-competes are permitted even with respect to senior executives. Notably, the FTC’s definition of senior govt is extra restricted than the Securities and Change Fee’s definition of govt officer. Senior executives are outlined to incorporate solely these employees who each (1) earned greater than $151,164 within the earlier yr and (2) are in a policy-making place.
“Coverage-making place” consists of the enterprise’ president, CEO and another officer who has policy-making authority. That can also be outlined by the FTC, together with closing authority to make policy-related choices that management vital points of the enterprise entity or enterprise.
An exception additionally exists for the bona fide sale of a enterprise. The ban doesn’t apply to non-competes entered into with respect to the bona fide sale of (1) a enterprise entity, (2) a person’s curiosity in a enterprise entity or (3) all or considerably all of a enterprise entity’s working property.
A sale is taken into account “bona fide” whether it is an arm’s size transaction between two unbiased events through which the vendor has an affordable alternative to barter the phrases of the sale.
The FTC’s “bona fide” requirement is designed to stop employers from requiring workers to comply with non-competes once they’re employed that anticipate future gross sales. The requirement can also be meant to stop firms from utilizing sham transactions entered into with wholly owned subsidiaries and associated entities to impose in any other case prohibited non-competes.
Nonetheless, the FTC additionally eradicated different limitations that will have utilized to the bona fide sale exception. Within the proposed rule, the exception would solely be out there with respect to gross sales the place the vendor had at the very least a 25% possession curiosity within the enterprise. The FTC additionally famous that non-competes entered into in reference to a enterprise sale may also be ruled by state legal guidelines, which usually require that the non-compete settlement be obligatory to guard the worth of the enterprise.
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