The FTC Has Officially Banned Noncompetes Nationwide
This week, the Federal Trade Comission announced a new ruling banning noncompete agreements between employers and employees. In today’s blog, we look at the ruling and what it might mean for your business.
On Tuesday, April 23rd, 2024, The Federal Trade Commission announced they were issuing a final rule banning noncompetes nationwide. The ruling comes over a year after the FTC initially announced they were considering the ban.
Reasons Behind the Ruling
According to FTC chair, Lina M. Khan, “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned.”
Essentially, the FTC determined that these sorts of clauses are generally exploitative and tend to only provide a benefit to employers while putting undo restrictions and burdens on employees. The FTC cited examples such as employees being required to relocate to a new area or take a position in a lower paying field as evidence of the types of issues employees subject to a noncompete face.
These agreements currently affect around 18% of the U.S workforce, and the FTC anticipates that removing these restrictions could lead to a 2.7% growth in new business formations, as well as estimated earnings increases of around $524 per year for workers. Additionally, they anticipate that there will be lower health care costs as a result.
What Does this Mean for Businesses?
Under this ruling, all existing noncompetes become “essentially unenforceable,” with companies being banned from entering new noncompetes. The exception to this rule is that existing noncompete agreements with senior executives can remain in effect.
Additionally, it’s important to note that the wording of this ruling only applies to agreements between workers and employers. This means that noncompete agreements between a buyer and seller of a business entity are exempt from this ruling as well.
One important thing to note is that businesses concerned about keeping information from competitors can still use trade secret laws and non-disclosure agreements to keep this information from competitors.
Given that many employees who are subject to a noncompete clause are typically also subject to an NDA there should be comparatively little impact on business operations or trade secrets despite the ruling.
The final thing to note is that the ruling will go into effect 120 days after publication in the federal registrar.
What You may Need to do
As mentioned above, the FTC is attempting to ensure that this ruling is easy to comply with. According to their announcement, employers merely have to notify their employees that they will no longer be enforcing noncompetes against them. If you are a business owner that needs to do this, their announcement provides model language that you can use.
There are no other required steps as far as the ruling goes, but you may want to ensure that any employees that are privy to sensitive proprietary information have an NDA in place, and that you remain up to date with all trade secret laws that may apply to ensure that your company’s assets are protected.
If you need assistance with any aspect of this ruling Seck & Associates can help with our 15+ years of helping entrepreneurs navigate changes such as these.* Have questions? Please do not hesitate to reach out today.
* The choice of a lawyer is an important decision and should not be based solely upon advertisements
* Correction: The original post was missing the link attribution to the original announcement.
Navigating the Corporate Transparency Act
Introduction
The United States has recently taken a significant step towards combating financial crimes by enacting the Corporate Transparency Act (CTA). Passed as part of the National Defense Authorization Act, the CTA requires companies to disclose their beneficial ownership information. This new legislation aims to make it harder to conceal illicit activity via corporate anonymity, thereby better safeguarding the U.S. financial system as a whole.
What is the Corporate Transparency Act?
The CTA requires certain U.S. limited liability companies, corporations, and other entities to provide the Financial Crimes Enforcement Network (FinCEN) with detailed information about their beneficial owners or anyone who owns or controls at least 25% of the ownership interests of the entity.
Who Has to Report?
Any entity that is a corporation, a limited liability company, or is created by filing a document with a Secretary of State or similar office under the law of a state or Indian tribe and that does not qualify for an exemption.
Access to the fee-free reporting system became available on January 1, 2024. Companies that existes before that date will have one year to file an initial report with FinCEN. Any company formed after that date will have 90 days to file an initial report.
For any US domestic company, the individual responsible for filing the report is the same individual who filed the companies original formation documents.
What is a FinCEN identifier?
Thsi is a unique number issued by FinCEN to individuals and reporting companies who apply for one by providing all the information that otherwise has to be included in the initial report. A reporting company may use this FinCEN identifier number in lieu of providing each piece of identifying information.
Businesses Implications
For businesses, the CTA introduces another set of compliance requirements.
Companies must make sure their information is up-to-date and accurately reported to the FinCEN. For those falling under the purview of the CTA, they must disclose the name, date of birth, address, and a unique identifying number (such as a passport number) for each beneficial owner. Failing to do so could result in stringent penalties against the offending entity. While the filings themselves can be tedious, the information required also has implications for privacy, as the collected information will be accessible by law enforcement agencies and, in certain cases, by financial institutions conducting due diligence.
If you would like help filing this report or would prefer that we file the report for your company please reach out to us at sseck@seckassociates.com. We are happy to discuss your FinCEN reporting needs or any other potential business needs you may have.