Ami Zweig

%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EBy%3C%2Fspan%3E+%3Ca+href%3D%22https%3A%2F%2Fmcllp.com%2Fpeople%2Fami-zweig%2F%22%3EAmi+Zweig%3C%2Fa%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3E%3Cem%3E%3Cstrong%3EAugust+21%2C+2024+Update%3A+The+FTC%E2%80%99s+non-compete+ban+has+now+been+permanently+enjoined+on+a+nationwide+basis+by+order+of+a+Texas+federal+court+granting+the+summary+judgment+motion+of+the+plaintiffs+challenging+the+proposed+rule%2C+which+will+now+no+longer+take+effect+on+September+4%2C+2024+%28as+it+would+have+but+for+the+court+challenge%29.+While+the+FTC+may+appeal+the+Texas+court%E2%80%99s+decision%2C+for+the+time+being%2C+the+non-compete+ban+has+been+stopped+dead+in+its+tracks.+Employers%2C+therefore%2C+may+continue+to+use+non-compete+clauses+in+employment+agreements%2C+but+should+continue+to+be+mindful+of+state-specific+enforceability+considerations.%3C%2Fstrong%3E%3C%2Fem%3E%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3E%3Cem%3EJuly+3%2C+2024+Update%3A%3C%2Fem%3E%3Cem%3E%C2%A0A+Texas+federal+court+has+issued+a+preliminary+injunction+putting+the+FTC%E2%80%99s+non-compete+ban+on+hold%2C+finding+that+the+Plaintiffs+challenging+the+rule+%28Ryan+LLC%2C+the+U.S.+Chamber+of+Commerce%2C+and+certain+other+business+associations%29+are+likely+to+succeed+on+the+merits+of+their+claims+that+the+FTC+exceeded+its+statutory+authority+in+issuing+the+non-compete+rule+and+that+the+rule+is+arbitrary+and+capricious.%C2%A0+The+Court+limited+the+scope+of+the+injunctive+relief+to+the+Plaintiffs+in+the+Texas+lawsuit%3B+stated+that+it+would+issue+a+subsequent+order+specifying+the+terms+of+the+injunctive+relief%3B+and+indicated+that+it+intends+to+enter+a+merits+disposition+in+the+case+on+or+before+August+30%2C+2024.%C2%A0+We+will+continue+to+monitor+this+case+for+further+developments.%3C%2Fem%3E%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3E%3Cem%3EMay+7%2C+2024+Update%3A+The+FTC%E2%80%99s+non-compete+rule+was+published+in+the+Federal+Register+on+May+7%2C+2024.+This+means+that+the+rule+banning+most+non-competes+will+take+effect+on+September+4%2C+2024+%E2%80%93+unless+halted+before+then+by+the+pending+lawsuits+challenging+the+rule+in+court.%3C%2Fem%3E%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EEmployers+were+hit+this+week+with+a+double+whammy+of+major+regulatory+developments+at+the+federal+level+that+may+require+significant+changes+to+their+employment+practices%3A+the+Federal+Trade+Commission+%28the+%E2%80%9CFTC%E2%80%9D%29+approved+a+final+rule+banning+employment-based+non-competition+agreements%2C+and+the+Department+of+Labor+%28the+%E2%80%9CDOL%E2%80%9D%29+released+its+final+rule+increasing+the+minimum+salary+threshold+for+exempt+status+under+the+Fair+Labor+Standards+Act.+Below%2C+we+discuss+what+employers+need+to+know+right+now+with+respect+to+these+two+developments+and+what+actions+employers+may+need+to+take+in+the+near+future.%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Ch3%3E%3Cspan+style%3D%22color%3A+%23be9b64%3B%22%3EFTC+Final+Rule+Banning+Employment-Based+Non-Competes%3C%2Fspan%3E%3C%2Fh3%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EImportantly%2C+for+the+time+being%2C+employers+can+continue+to+take+a+%E2%80%9Cwait+and+see%E2%80%9D+approach+before+implementing+any+sweeping+changes+to+their+non-compete+practices+because+the+FTC%E2%80%99s+final+rule+is+already+being+challenged+in+court+%28including+by+the+U.S.+Chamber+of+Commerce%2C+among+other+parties%29.+Such+challenges%2C+if+successful%2C+could+stop+the+final+rule+in+its+tracks.%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EHowever%2C+in+the+event+such+challenges+are+unsuccessful+and+the+final+rule+takes+effect%2C+here+is+what+employers+will+be+facing%3A%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cul%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EAs+of+the+effective+date+of+the+final+rule+%28which+will+be+120+days+after+publication+in+the+Federal+Register%29%2C+non-compete+clauses+%E2%80%93+i.e.%2C+covenants+with+employees%2C+independent+contractors%2C+or+other+workers+prohibiting+them+from+working+elsewhere+or+operating+another+business+after+the+conclusion+of+the+employment+or+engagement+%E2%80%93+will+be+banned.+The+final+rule+defines+a+%E2%80%9Cnon-compete+clause%E2%80%9D+as+a+%E2%80%9Cterm+or+condition+of+employment+that+prohibits+a+worker+from%2C+penalizes+a+worker+for%2C+or+functions+to+prevent+a+worker+from%3A+%28i%29+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+condition%3B+or+%28ii%29+operating+a+business+in+the+United+States+after+the+conclusion+of+the+employment+that+includes+the+term+or+condition.%E2%80%9D%3C%2Fspan%3E%3C%2Fli%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3ENon-competes+entered+into+prior+to+the+effective+date+of+the+final+rule+will+become+unenforceable%2C+except+with+respect+to+%E2%80%9Csenior+executives%E2%80%9D+%28defined+as+workers+in+a+%E2%80%9Cpolicy-making+position%E2%80%9D+whose+annualized+total+compensation+in+the+preceding+year+was+at+least+%24151%2C164%29.+For+senior+executives%2C+non-competes+entered+into+before+the+effective+date+may+remain+in+effect+and+be+enforced%2C+but+non-competes+entered+into+after+the+effective+date+will+be+unenforceable.%3C%2Fspan%3E%3C%2Fli%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EFor+pre-existing+non-competes+that+will+become+unenforceable+as+of+the+effective+date+%28i.e.%2C+non-competes+with+workers+who+are+not+senior+executives%29%2C+employers+must+provide+written+notice+to+such+workers+by+the+effective+date+that+their+non-competes+are+no+longer+enforceable.+The+final+rule+provides+model+language+for+such+notice+and+details+regarding+the+method+of+communication.%3C%2Fspan%3E%3C%2Fli%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EOf+great+significance+to+private+equity+firms+and+other+acquisitive+businesses%2C+the+FTC%E2%80%99s+final+rule+contains+an+exception+for+covenants+entered+into+%E2%80%9Cpursuant+to+a+bona+fide+sale+of+a+business+entity%2C+of+the+person%E2%80%99s+ownership+interest+in+a+business+entity%2C+or+of+all+or+substantially+all+of+a+business+entity%E2%80%99s+operating+assets.%E2%80%9D+Notably%2C+while+the+FTC%E2%80%99s+original+proposed+rule+included+a+25%25+ownership+threshold+for+the+exception+for+sale-based+non-competes+to+apply%2C+the+final+rule+omits+any+such+threshold%2C+leaving+the+door+open+for+purchasers+in+M%26amp%3BA+transactions+to+continue+entering+into+sale-based+non-competes+with+sellers+whose+ownership+interest+is+less+than+25%25.%3C%2Fspan%3E%3C%2Fli%3E%0A%3C%2Ful%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EWhile+employers+should+monitor+the+pending+litigations+over+the+FTC%E2%80%99s+final+rule+before+implementing+any+sweeping+changes+to+their+non-compete+practices%2C+steps+that+employers+may+wish+to+take+in+anticipation+of+the+final+rule+potentially+becoming+effective+include+the+following%3A%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cul%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EPrior+to+the+effective+date+of+the+final+rule%2C+consider+entering+into+non-competes+with+any+newly+hired+%E2%80%9Csenior+executives%E2%80%9D+or+with+existing+%E2%80%9Csenior+executives%E2%80%9D+who+do+not+already+have+non-competes+%28subject+to+any+applicable+state+law+requirements+for+such+executives%29.%3C%2Fspan%3E%3C%2Fli%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EIdentify+and+collect+contact+information+for+any+current+or+former+workers+who+%28if+the+final+rule+takes+effect%29+would+need+to+receive+notice+that+their+non-compete+is+no+longer+enforceable.%3C%2Fspan%3E%3C%2Fli%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EReview+and+consider+strengthening+non-solicitation+covenants+in+agreements+with+workers+%28as+discussed+in+more+detail+in+a+previous+client+alert%29.+Notably%2C+while+the+FTC%E2%80%99s+original+proposed+non-compete+ban+also+would+have+covered+any+%E2%80%9Cde+facto+non-compete%E2%80%9D+%28which%2C+arguably%2C+may+have+covered+broadly+drafted+non-solicitation+clauses%29%2C+the+final+rule+omits+that+language%2C+instead+adding+the+%E2%80%9Cnon-compete+clause%E2%80%9D+definition+referenced+above.+Based+on+that+definition%2C+as+long+as+a+non-solicitation+clause+does+not+%E2%80%9Cfunction+to+prevent+a+worker+from%E2%80%9D+working+for+or+operating+another+business%2C+it+would+not+be+covered+by+the+FTC%E2%80%99s+ban+on+non-competes.%3C%2Fspan%3E%3C%2Fli%3E%0A%3C%2Ful%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Ch3%3E%3Cspan+style%3D%22color%3A+%23be9b64%3B%22%3EFLSA+Minimum+Salary+Threshold+Increasing+to+%2458%2C656+Per+Year%3C%2Fspan%3E%3C%2Fh3%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3ENot+to+be+lost+in+the+frenzy+of+the+FTC%E2%80%99s+non-compete+ban%2C+the+U.S.+Department+of+Labor+this+week+released+its+final+rule+increasing+the+minimum+salary+thresholds+for+exempt+status+from+the+overtime+pay+requirements+of+the+Fair+Labor+Standards+Act+%28the+%E2%80%9CFLSA%E2%80%9D%29.+Unless+successfully+challenged+through+litigation+%28which+happened+when+the+DOL+previously+attempted+to+raise+the+salary+threshold+during+President+Obama%E2%80%99s+administration%29%2C+the+DOL%E2%80%99s+final+rule+will+require+action+by+employers+as+soon+as+early+this+summer+and%2C+again%2C+at+the+end+of+the+year.%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EUnder+the+new+rule%2C+the+minimum+salary+threshold+for+the+FLSA%E2%80%99s+executive%2C+administrative%2C+and+professional+exemptions+will+increase+twice+over+the+next+year%3A+first%2C+from+its+current+rate+%28%2435%2C568+per+year%29+to+an+interim+rate+of+%2443%2C888+per+year+%28effective+as+of+July+1%2C+2024%29%3B+and+then%2C+to+the+final+rate+of+%2458%2C656+per+year+%28effective+as+of+January+1%2C+2025%29.+Remaining+unchanged+is+the+requirement+that+for+an+employee+to+qualify+for+these+exemptions%2C+in+addition+to+receiving+at+least+the+minimum+salary+threshold%2C+the+employee%E2%80%99s+role+must+satisfy+a+duties+test%2C+which+differs+for+each+exemption.+%28Certain+other+exemptions+under+the+FLSA%2C+such+as+the+outside+sales+employee+exemption%2C+do+not+have+a+salary+threshold.%29%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EThe+DOL%E2%80%99s+final+rule+also+raises+the+total+annual+compensation+threshold+for+the+%E2%80%9Chighly+compensated+employee%E2%80%9D+exemption+%28which+involves+a+relaxed+version+of+the+duties+test%29+from+its+current+rate+%28%24107%2C432+per+year%29+to+%24132%2C964+%28effective+as+of+July+1%2C+2024%29%2C+and+then+to+%24151%2C164+%28effective+as+of+January+1%2C+2025%29.%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EThe+thresholds+for+each+of+these+exemptions+will+automatically+increase+again+every+three+years%2C+beginning+July+1%2C+2027%2C+to+reflect+current+earnings+data.%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EWhile+some+states+%28such+as+California+and+New+York%29+already+require+salaries+above+the+new+FLSA+thresholds%2C+most+states+do+not.+Employers+should+assess+their+workforces+to+identify+any+employees+currently+classified+as+exempt+under+the+executive%2C+administrative%2C+professional%2C+or+highly+compensated+employee+exemptions+whose+pay+is+below+the+applicable+new+threshold+under+the+DOL%E2%80%99s+final+rule.+Employers+must+then+determine+whether+to+%28a%29+raise+the+employee%E2%80%99s+pay+to+the+applicable+new+threshold+level+or+%28b%29+re-classify+the+employee+as+non-exempt%2C+meaning+that+the+employer+would+need+to+record+the+employee%E2%80%99s+time+worked+and+pay+the+employee+at+the+overtime+rate+%28one+and+one-half+times+the+employee%E2%80%99s+%E2%80%9Cregular+rate+of+pay%E2%80%9D%29+for+any+hours+worked+over+forty+%2840%29+in+a+week.+Any+such+changes+should+be+implemented+on+or+before+the+effective+dates+of+the+new+salary+thresholds+%28July+1%2C+2024%2C+and+January+1%2C+2025%2C+respectively%29+%E2%80%93+pending+the+possibility+of+any+successful+challenges+in+court+to+the+DOL%E2%80%99s+final+rule%2C+which+employers+should+monitor+over+the+coming+months.%3C%2Fspan%3E%3C%2Fp%3E%0A

%3Cdiv+id%3D%22block-65c539d6d4d308037a27ac67%22+class%3D%22sqs-block+html-block+sqs-block-html%22+data-block-type%3D%222%22%3E%0A%3Cdiv+class%3D%22sqs-block-content%22%3E%0A%3Cdiv+class%3D%22sqs-html-content%22%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EBy%3C%2Fspan%3E+%3Ca+href%3D%22https%3A%2F%2Fmcllp.com%2Fattorneys%2Fami-zweig%2F%22+rel%3D%22noopener%22%3EAmi+Zweig%3C%2Fa%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3C%2Fdiv%3E%0A%3C%2Fdiv%3E%0A%3C%2Fdiv%3E%0A%3Cdiv+id%3D%22block-yui_3_17_2_1_1707424273271_2365%22+class%3D%22sqs-block+html-block+sqs-block-html%22+data-block-type%3D%222%22%3E%0A%3Cdiv+class%3D%22sqs-block-content%22%3E%0A%3Cdiv+class%3D%22sqs-html-content%22%3E%0A%3Cp+class%3D%22%22%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EEmployers+looking+for+ways+to+enhance+their+restrictive+covenant+protections+should+take+note+of+an+important+recent+decision+from+the+Delaware+Supreme+Court+regarding+a+%E2%80%9Cforfeiture-for-competition%E2%80%9D+clause+in+a+limited+partnership+agreement.%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp+class%3D%22%22%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EA+traditional+%E2%80%9Cnon-compete%E2%80%9D+clause+restricts+an+employee+from+working+for+a+competitor+for+a+reasonable+period+following+termination+of+employment+and+is+typically+enforceable+via+injunctive+relief.+Thus%2C+if+the+employer+can+show+that+the+terms+of+the+covenant+are+reasonable+%28and%2For+satisfy+any+other+applicable+state+law+requirements%29%2C+the+employer+can+obtain+a+court+order+enjoining+the+employee+from+engaging+in+competitive+activity+in+violation+of+the+covenant.+A+%E2%80%9Cforfeiture-for-competition%E2%80%9D+clause+is+similar+to+a+non-compete%2C+but+rather+than+being+enforceable+via+injunctive+relief%2C+the+result+of+the+employee+engaging+in+competitive+activity+is+that+the+employee+forfeits+certain+deferred+compensation.+In+other+words%2C+a+forfeiture-for-covenant+clause+does+not+prohibit+the+employee+from+working+for+a+competitor+but+creates+an+economic+incentive+for+the+employee+to+avoid+doing+so.%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp+class%3D%22%22%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EThe+question+before+the+Delaware+Supreme+Court+in+%3Cem%3ECantor+Fitzgerald%2C+L.P.+v.+Ainslie%3C%2Fem%3E+was+whether+a+forfeiture-for-covenant+clause+in+a+limited+partnership+agreement+was+subject+to+the+same+reasonableness+test+as+a+traditional+non-compete.+The+clause+at+issue+provided+for+forfeiture+of+certain+deferred+compensation+if+a+partner+engaged+in+competitive+activities+within+four+years+of+leaving+the+partnership.+The+Court+of+Chancery+had+applied+a+reasonableness+test+to+the+forfeiture-for-competition+clause+and%2C+accordingly%2C+found+the+clause+unenforceable+due+mainly+to+its+unreasonable+duration+of+four+years.%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp+class%3D%22%22%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EOverturning+the+Court+of+Chancery+decision%2C+the+Delaware+Supreme+Court+held+that+the+forfeiture-for-competition+clause+at+issue+%E2%80%93+unlike+traditional+non-competes+%E2%80%93+%3Cem%3Eshould+not+be+subject+to+a+reasonableness+test%3C%2Fem%3E+but+rather%2C+%E2%80%9Cshould+enjoy+this+court%26%238217%3Bs+deference+on+equal+footing+with+any+other+bargained-for-term+in+a+limited+partnership+agreement.%E2%80%9D+2024+WL+315193%2C+at+%2A13+%28Del.+Jan.+29%2C+2024%29.+In+other+words%2C+such+clause+should+be+enforceable+%E2%80%9Cabsent+unconscionability%2C+bad+faith%2C+or+other+extraordinary+circumstances.%E2%80%9D+%3Cem%3EId%3C%2Fem%3E.+at+%2A1+%28Del.+Jan.+29%2C+2024%29.+As+the+Court+concluded%2C+%E2%80%9CWhen+sophisticated+parties+agree+in+a+limited+partnership+agreement+that+a+partner%2C+who+voluntarily+withdraws+from%2C+and+then+competes+with+the+partnership%2C+will+forfeit+contingent+post-withdrawal+financial+benefits%2C+public-policy+considerations+weigh+in+favor+of+enforcing+that+agreement.%E2%80%9D+%3Cem%3EId%3C%2Fem%3E.+at+%2A13.%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp+class%3D%22%22%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3E%3Cem%3ECantor+Fitzgerald%3C%2Fem%3E+is+significant+because+it+solidifies+the+law+in+this+area+in+Delaware+%28which%2C+is+the+governing+law+for+many+corporate+operating+agreements%29+and+allows+for+the+possibility+of+protections+against+competitive+activities+spanning+materially+longer+durations+than+traditional+non-competes.+While+the+Delaware+Supreme+Court%E2%80%99s+decision+came+about+in+the+context+of+a+limited+partnership+agreement+under+Delaware+law%2C+practitioners+may+point+to+it+as+support+for+the+enforceability+of+forfeiture-for-competition+provisions+%28without+regard+to+any+test+for+reasonableness%29+in+other+contexts.%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp+class%3D%22%22%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EBased+on+this+development+from+Delaware%E2%80%99s+highest+court%2C+many+businesses+that+use+deferred+compensation+arrangements+with+partners+or+employees+can+now%2C+much+more+confidently+than+before%2C+utilize+forfeiture-for-covenant+provisions+as+an+additional+tool+%E2%80%93+coupled+with+non-competes+and+other+traditional+restrictive+covenants+%E2%80%93+for+disincentivizing+post-employment+competitive+activities.+Particularly+given+the+heightened+focus+in+recent+years+on+traditional+non-competes+%28including+a+wave+of+state-level+laws%2C+as+well+as+a+proposed+rule+from+the%3C%2Fspan%3E+%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EFederal+Trade+Commission+that+would+ban+non-competes+in+the+employment+context%2C+which+currently+remains+pending+%E2%80%93+check+out+our%3C%2Fspan%3E+%3Ca+href%3D%22https%3A%2F%2Fmcllp.com%2Fnews%2Frestrictive-covenant-strategies-for-employers-in-anticipation-of-the-enactment-or-not-of-the-ftcs-proposed-ban-on-non-competes%2F%22+target%3D%22_blank%22+rel%3D%22noopener%22%3Eprevious+discussion+of+the+FTC%E2%80%99s+proposed+rule%3C%2Fa%3E+%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3Efor+more+detailed+coverage%29%2C+the+availability+of+forfeiture-for-covenant+provisions+may+prove+to+be+increasingly+important+for+employers+in+the+years+to+come.%3C%2Fspan%3E%3C%2Fp%3E%0A%3C%2Fdiv%3E%0A%3C%2Fdiv%3E%0A%3C%2Fdiv%3E%0A

%3Ch3%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3E%3Cem%3E%3Ca+style%3D%22color%3A+%237f7f7f%3B%22+href%3D%22https%3A%2F%2Fwww.investmentcouncil.org%2F%22+target%3D%22_blank%22+rel%3D%22noopener%22%3EAmerican+Investment+Council%3C%2Fa%3E%3C%2Fem%3E%3C%2Fspan%3E%3C%2Fh3%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EBy%3C%2Fspan%3E+%3Ca+href%3D%22https%3A%2F%2Fmcllp.com%2Fattorneys%2Fami-zweig%2F%22%3EAmi+Zweig%3C%2Fa%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3ESince+January%2C+employment+lawyers+and+their+clients+have+been+eagerly+awaiting+the+outcome+of+the+Federal+Trade+Commission%E2%80%99s+controversial+proposed+rule+that+would+ban+non-competition+agreements+in+the+employment+context+entirely%2C+as+well+as+prohibit+non-competes+in+the+sale+of+business+context+with+workers+whose+ownership+interest+being+sold+is+less+than+25+percent.%5B1%5D+The+FTC+recently+extended+the+public+comment+period+on+its+proposed+rule+by+a+month%2C+through+April+19%2C+2023.+Employers+may+wish+to+use+this+additional+time+to+evaluate+their+restrictive+covenant+practices+in+preparation+for+either+%28A%29+the+FTC%E2%80%99s+proposed+rule+going+into+effect%2C+or+%28B%29+the+FTC%E2%80%99s+proposed+rule+not+going+into+effect%2C+which+could+lead+to+non-competes+being+challenged+in+myriad+other+ways.+Here%2C+we+discuss+strategies+for+employers+%E2%80%93+particularly+acquisitive+entities+such+as+private+equity+firms+and+their+portfolio+companies+%E2%80%93+to+consider+in+preparing+for+both+such+outcomes.%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Ch3%3E%3Cspan+style%3D%22color%3A+%23be9b64%3B%22%3EActions+and+Considerations+if+the+FTC%E2%80%99s+Proposed+Rule+is+Enacted%3C%2Fspan%3E%3C%2Fh3%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EIf+the+FTC%E2%80%99s+proposed+rule+becomes+the+law+of+the+land%2C+one+of+the+first+orders+of+business+for+employers+will+be+to+prepare+mandatory+notices+of+rescission+to+current+or+former+employees+with+non-competes+rendered+unenforceable+by+the+new+rule.+Specifically%2C+the+proposed+rule+provides+that+each+such+notice+must+be%3A%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cul%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3Ean+%E2%80%9Cindividualized+communication%E2%80%9D+informing+the+worker+that+his+or+her+non-compete+is+no+longer+in+effect+and+may+not+be+enforced+%28the+proposed+rule+contains+model+language+that+employers+may%2C+but+are+not+required+to%2C+use+for+this+communication%29%3B%3C%2Fspan%3E%3C%2Fli%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3Eprovided+on+paper+or+in+a+digital+format%2C+such+as+email+or+text+message%3B+and%3C%2Fspan%3E%3C%2Fli%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3Eprovided+within+45+days+of+the+%E2%80%9Ccompliance+date%E2%80%9D+%28which+the+proposed+rule+defines+as+180+days+after+publication+of+the+final+rule%29.%3C%2Fspan%3E%3C%2Fli%3E%0A%3C%2Ful%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3ETo+prepare+for+fulfilling+these+notice+requirements%2C+employers+would+need+to+identify+all+current+and+former+employees+with+non-competes+invalidated+by+the+proposed+rule+%28which+need+not+include+former+employees+with+non-competes+expiring+prior+to+the+compliance+date%29%2C+gather+their+contact+information%2C+draft+the+necessary+language+for+the+notices%2C+and+implement+a+plan+for+distributing+the+notices.%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EMore+fundamentally%2C+employers+will+need+to+re-evaluate+their+restrictive+covenant+practices+going+forward.+The+easy+%28though+perhaps+painful+for+many%29+part+of+this+process+for+employers+will+be+to+eliminate+post-employment+non-competes+from+their+form+employment+agreements.+The+more+challenging+exercise+will+be+to+scrutinize+their+remaining+restrictive+covenants+%E2%80%93+most+notably%2C+covenants+not+to+solicit+employees%2C+customers%2C+or+other+business+relations+%E2%80%93+bearing+in+mind+the+dual+purpose+of+ensuring+that+such+covenants+are+sufficiently+broad+to+protect+the+employer%E2%80%99s+legitimate+business+interests%2C+yet+narrowly+tailored+enough+to+mitigate+the+risk+of+attacks+on+their+enforceability.+In+a+world+without+non-competes%2C+these+non-solicitation+covenants+will+become+the+%E2%80%9Cfirst+line+of+defense%E2%80%9D+%E2%80%93+and+thus%2C+more+important+than+ever+%E2%80%93+for+employers+seeking+to+protect+their+critical+business+relationships%2C+but+may+be+ripe+for+challenge+by+employees+and+their+counsel+as+well+as+state+legislatures+or+other+government+officials%2C+who+may+feel+emboldened+by+the+new+legal+framework+ushered+in+by+the+FTC.%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EScrutinizing+existing+non-solicitation+clauses+is+especially+important+because+the+FTC%E2%80%99s+proposed+ban+on+non-competes+includes+any+%E2%80%9Cde+facto+non-compete%2C%E2%80%9D+defined+as+a+clause+that+%E2%80%9Chas+the+effect+of+prohibiting+the+worker+from+seeking+or+accepting+employment+with+a+person+or+operating+a+business+after+the+conclusion+of+the+worker%E2%80%99s+employment+with+the+employer.%E2%80%9D+As+examples+of+such+a+clause%2C+the+proposed+rule+lists+a+non-disclosure+agreement+that+is+%E2%80%9Cwritten+so+broadly+that+it+effectively+precludes+the+worker+from+working+in+the+same+field%2C%E2%80%9D+and+a+requirement+for+repayment+of+training+costs+that+is+%E2%80%9Cnot+reasonably+related+to+the+costs+the+employer+incurred+for+training+the+worker.%E2%80%9D+While+the+proposed+rule+does+not+discuss+non-solicits+specifically+%28and+their+absence+from+the+list+of+%E2%80%9Cde+facto+non-compete%E2%80%9D+examples+could+be+an+indication+that+the+FTC+did+not+intend+to+include+such+covenants+within+the+scope+of+the+rule%29%2C+employees+and+their+counsel+may+argue+that+some+non-solicits+are+drafted+so+broadly+as+to+constitute+de+facto+non-competes+%E2%80%93+an+argument+that+courts+will+inevitably+be+confronted+with+in+litigation+if+the+FTC%E2%80%99s+proposed+rule+takes+effect.%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EIn+examining+their+existing+non-solicitation+covenants%2C+employers+should+ask+themselves%3A%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cul%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3E%3Cem%3E%3Cstrong%3EDoes+the+non-solicit+identify+the+right+types+of+business+relations+that+are+of+critical+importance+in+the+context+of+the+employer%E2%80%99s+business%3F%3C%2Fstrong%3E+%3C%2Fem%3EFor+companies+such+as+service+providers%2C+this+may+mean+their+customers+or+clients.+For+private+equity+firms%2C+this+may+mean+their+investors%2C+or+businesses+they+are+targeting+for+acquisition.+For+companies+such+as+manufacturers%2C+this+may+mean+their+vendors+or+suppliers.+For+most+%28if+not+all%29+employers%2C+this+would+also+include+their+employees.+An+employer+may+reasonably+conclude+that+its+list+of+business+relations+protected+by+a+non-solicitation+clause+should+include+many+or+all+of+the+foregoing+examples.+But+the+types+of+business+relations+that+warrant+protection+may+differ+from+company+to+company%2C+or+sometimes+even+from+employee+to+employee+%28depending+on+their+role+at+the+company+or+the+nature+of+their+business+relationships%29.+Employers+would+be+prudent+to+assess+this+question+from+a+business+perspective%2C+to+ensure+that+their+non-solicitation+agreements+cover+the+business+relations+that+are+of+critical+importance+to+that+company%2C+but+%28to+protect+against+an+argument+of+overbreadth%29+not+those+that+are+of+little+to+no+import.%3C%2Fspan%3E%3C%2Fli%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3E%3Cem%3E%3Cstrong%3EDoes+the+non-solicit+apply+reasonable+limitations+to+the+scope+of+those+who+cannot+be+solicited%3F%3C%2Fstrong%3E%3C%2Fem%3E+For+example%2C+some+non-solicitation+covenants+include+language+limiting+the+applicability+of+the+restriction+to+customers+or+employees+whom+the+restricted+employee+actually+had+contact+with+or+learned+confidential+information+about+during+a+defined+lookback+period.+Any+such+limitation+should+be+crafted+to+ensure+that+the+employer%E2%80%99s+interests+are+still+protected+%E2%80%93+typically%2C+the+relationships+that+the+employer+cares+most+about+protecting+are+those+that+the+restricted+employee+was+actually+involved+with+or+knew+confidential+information+about+during+a+reasonably+recent+period+%E2%80%93+while+guarding+against+arguments+that+the+covenant+is+overbroad+because+it+is+not+narrowly+tailored+to+the+company%E2%80%99s+legitimate+protectable+interests.+If+the+FTC%E2%80%99s+proposed+rule+goes+into+effect%2C+employees+and+their+counsel+will+undoubtedly+assert+that+some+non-solicits+are+%E2%80%9Cde+facto+non-competes%E2%80%9D+because+%28the+argument+would+go%29+they+are+drafted+so+broadly+as+to+effectively+preclude+the+employee+from+working+in+the+same+field.+For+example%2C+one+can+envision+this+argument+being+made+in+the+context+of+a+covenant+prohibiting+solicitation+of+a+large+employer%E2%80%99s+%E2%80%9Ccustomers+and+prospective+customers%E2%80%9D+with+no+guardrails+on+who+would+be+deemed+a+%E2%80%9Cprospective+customer%E2%80%9D+of+that+large+employer.+Considering+the+logical+response+to+that+hypothetical+argument+may+be+a+helpful+litmus+test+for+employers+in+assessing+their+existing+non-solicitation+covenants.%3C%2Fspan%3E%3C%2Fli%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3E%3Cem%3E%3Cstrong%3EDoes+the+non-solicit+apply+equally+to+all+company+employees%2C+or+does+it+differ+based+on+role+or+responsibilities%3F%3C%2Fstrong%3E%3C%2Fem%3E+While+a+%E2%80%9Cone+size+fits+all%E2%80%9D+non-solicit+may+make+sense+for+many+companies+%28particularly+smaller+ones%29%2C+employers+should+consider%2C+for+example%2C+whether+their+non-solicitation+agreements+could+be+improved+through+appropriate+variations+to+their+standard+language+based+on+an+employee%E2%80%99s+role+%28taking+into+account+the+nature+of+the+employee%E2%80%99s+business+relationships+and+their+access+to+confidential+information%29%2C+or+whether+non-solicitation+covenants+are+warranted+at+all+%28or%2C+perhaps%2C+in+modified+form%29+for+lower-level+employees.%3C%2Fspan%3E%3C%2Fli%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3E%3Cem%3E%3Cstrong%3EDoes+the+non-solicit+account+for+any+state-specific+issues+in+the+states+where+the+company+has+employees%3F%3C%2Fstrong%3E+%3C%2Fem%3EAlthough+most+state+laws+concerning+restrictive+covenants+currently+focus+on+non-competes+rather+than+non-solicits%2C+that+is+not+universal.+For+example%2C+in+California%2C+many+courts+have+deemed+customer+non-solicits+unenforceable+%28viewing+them+as+akin+to+post-employment+non-competes%2C+which+California+expressly+prohibits%29+outside+the+limited+context+of+protecting+confidential+information%2C+though+many+California+courts+have+enforced+employee+non-solicits.%5B2%5D+In+Illinois%2C+the+%E2%80%9CFreedom+to+Work+Act%E2%80%9D+prohibits+non-solicits+with+employees+earning+less+than+%2445%2C000+per+year+%28a+threshold+that+will+rise+beginning+in+2027%29%2C+and+imposes+various+other+requirements+that+apply+to+both+non-solicits+and+non-competes.+Moreover%2C+if+the+FTC+outlaws+employment+non-competes+at+the+federal+level%2C+state+legislatures+%28which+have+largely+focused+their+efforts+to+date+in+this+space+on+non-competes%29+may+pivot+their+attention+to+non-solicits.%3C%2Fspan%3E%3C%2Fli%3E%0A%3C%2Ful%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Ch3%3E%3Cspan+style%3D%22color%3A+%23be9b64%3B%22%3EActions+and+Considerations+if+the+FTC%E2%80%99s+Proposed+Rule+is+%3Cem%3ENot%3C%2Fem%3E+Enacted%3C%2Fspan%3E%3C%2Fh3%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EWhile+employers+may+breathe+a+sigh+of+relief+if+the+FTC%E2%80%99s+proposed+rule+is+not+enacted%2C+employers+should+not+assume+that+the+lack+of+a+federal+ban+on+non-competes+means+that+they+can+safely+proceed+with+the+status+quo.+Of+course%2C+the+FTC+may+seek+to+enact+a+variation+of+its+proposed+rule+that+would+limit+the+use+of+non-competes+in+unknown+other+ways+%28which+this+article+will+not+attempt+to+predict%29.+But+even+without+any+formal+rulemaking+from+the+FTC%2C+given+the+heightened+attention+in+this+area+as+a+result+of+the+FTC%E2%80%99s+proposed+rule+and+the+Biden+administration%E2%80%99s+focus+on+non-competes+as+an+enforcement+priority%2C%5B3%5D+employers+should+anticipate+that+restrictive+covenant+scrutiny+will+only+continue+to+rise%2C+both+from+the+federal+government+and+state+legislatures+as+well+as+in+courtrooms+around+the+country.%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3ETo+that+end%2C+what+prophylactic+measures+can+employers+take+to+insulate+themselves+against+such+increased+scrutiny%2C+which+may+manifest+in+unpredictable+ways%3F%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EFirst%2C+the+considerations+discussed+above+with+respect+to+non-solicits+apply+whether+or+not+the+FTC%E2%80%99s+proposed+rule+takes+effect.+Even+if+a+non-solicit+is+an+employer%E2%80%99s+%E2%80%9Csecond+line+of+defense%E2%80%9D+behind+a+non-compete%2C+employers+should+not+blindly+assume+that+their+non-competes+will+be+enforced+%E2%80%93+particularly+as+legislators+and+regulators+continue+to+tighten+the+reins+in+this+area+%E2%80%93+thus+bringing+the+non-solicit+back+to+the+forefront.%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3ESecond%2C+employers+should+examine+how+the+enforceability+of+their+existing+non-competes+might+be+susceptible+to+attack%2C+and+consider+ways+to+potentially+shore+up+any+vulnerabilities+they+identify.+For+example%3A%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cul%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3E%3Cem%3E%3Cstrong%3EDoes+the+non-compete+account+for+any+state-specific+issues+in+the+states+where+the+company+has+employees%3F%3C%2Fstrong%3E+%3C%2Fem%3EBy+way+of+example+only+%28as+many+states+have+enacted+non-compete+laws+in+recent+years+with+varying+requirements%2C+which+this+article+will+not+attempt+to+summarize+in+full%29%2C+employers+should+identify+any+applicable+earnings+thresholds%2C+durational+limits%2C+notice+or+consideration+requirements%2C+or+other+rules+that+may+apply+to+non-competes+in+the+states+where+the+employer+resides+or+operates.+Employers+should+also+consider+the+rules+concerning+judicial+%E2%80%9Cblue-penciling%E2%80%9D+%28i.e.%2C+modifying+or+reforming+otherwise+unenforceable+restrictive+covenants%29+in+the+relevant+states%2C+as+each+state%E2%80%99s+approach+%E2%80%93+which+can+range+from+a+strict+%E2%80%9Cno+blue+pencil%E2%80%9D+rule%2C+to+a+limited+blue+pencil+rule+%28allowing+courts+to+delete+but+not+substitute+language%29%2C+to+a+discretionary+approach%2C+to+mandatory+blue+penciling+%E2%80%93+may+impact+how+aggressive+or+conservative+an+employer+chooses+to+be+in+its+restrictive+covenant+agreements.%3C%2Fspan%3E%3C%2Fli%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3E%3Cem%3E%3Cstrong%3EDoes+the+non-compete+appropriately+define+the+scope+of+the+restricted+business+%28especially+in+the+sale-of-business+context%29%3F%3C%2Fstrong%3E%3C%2Fem%3E+A+recent+Delaware+Chancery+Court+decision+highlighted+the+importance+of+this+factor.+In+%3Cem%3EKodiak+Building+Partners%2C+LLC+v.+Adams+%28Del.+Ch.+Oct.+6%2C+2022%29%3C%2Fem%3E%2C+the+Court+refused+to+enforce+non-compete+and+non-solicit+covenants+in+the+context+of+a+sale+of+a+business+because+their+scope+covered+not+only+the+business+of+the+acquired+company%2C+but+also+the+business+of+the+buyer+and+its+affiliates.+The+Court+explained+that+in+this+context%2C+the+buyer+has+a+legitimate+interest+in+protecting+the+assets+and+goodwill+of+the+business+being+acquired%2C+but+that+legitimate+interest+does+not+extend+to+other+industries+%28outside+the+scope+of+the+acquired+business%29+in+which+the+buyer+may+also+be+involved.+Hypothetically%2C+if+a+buyer+were+to+employ+an+individual+seller+%28after+acquiring+the+seller%E2%80%99s+business%29+in+a+role+that+extends+into+other+industries+in+which+the+buyer+is+also+involved%2C+the+buyer+would+have+a+reasonable+basis+for+including+restrictive+covenants+in+the+seller%E2%80%99s+employment+agreement+that+extend+into+those+other+industries.+As+a+basic+guidepost%2C+employers+should+endeavor+to+tailor+their+sale-of-business+non-competes+to+the+scope+of+the+business+being+acquired%2C+and+their+employment+non-competes+to+the+scope+of+the+business+for+which+the+employee+works.%3C%2Fspan%3E%3C%2Fli%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3E%3Cem%3E%3Cstrong%3EWould+the+non-compete+be+vulnerable+to+the+%E2%80%9Csecretary+or+janitor%E2%80%9D+argument%3F%3C%2Fstrong%3E%3C%2Fem%3E+A+recent+decision+from+a+federal+district+court+in+%3Cem%3EGeorgia%2C+AmSpec%2C+LLC+v.+Calhoun%2C+et+al.+%28S.D.+Ga.+Dec.+16%2C+2022%29%3C%2Fem%3E%2C+illustrated+the+oft-used+argument+that+a+non-compete+is+overbroad+%28and+therefore+unenforceable%29+if+it+is+drafted+so+broadly+that+it+would+prohibit+the+employee+from+working+even+as+a+%E2%80%9Csecretary+or+janitor%E2%80%9D+at+a+competitor.+In+AmSpec%2C+the+non-compete+at+issue+purported+to+prohibit+the+employees+from+working+in+any+role+in+which+they+would+%E2%80%9Ccontribute+%5Btheir%5D+knowledge+%E2%80%A6+to+an+entity+engaged+in+the+same+or+similar+business+as+AmSpec.%E2%80%9D+The+employees+argued+that+the+non-compete+was+overbroad+because+it+would+prohibit+them+from+working+even+in+non-competitive+roles+%28such+as+a+%E2%80%9Csecretory+or+janitor%E2%80%9D%29+for+any+entity+engaged+in+the+same+business+as+AmSpec.+The+Court+concurred%2C+refusing+to+enforce+the+non-compete+because+it+would+prohibit+the+employees+from+working+%E2%80%9Cin+any+capacity%E2%80%9D+for+a+competitive+business+%28i.e.%2C+even+in+a+non-competitive+role%29.+While+other+courts+could+have+analyzed+the+non-compete+at+issue+in+this+case+and+come+to+a+different+conclusion%2C+the+takeaway+for+employers+from+the+%3Cem%3EAmspec%3C%2Fem%3E+decision+is+that+some+courts+may+view+a+non-compete+that+prohibits+working+for+a+competitor+in+any+capacity+as+overbroad.+To+guard+against+that+possibility%2C+employers+may+consider%2C+for+example%2C+limiting+their+non-competes+to+prohibit+employment+only+in+certain+roles+%28such+as+managerial+or+executive+roles%2C+sales+roles%2C+etc.%29%2C+or+perhaps+in+roles+in+which+the+employee+would+likely+or+inevitably+use+confidential+information+learned+during+their+prior+employment.%3C%2Fspan%3E%3C%2Fli%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3E%3Cem%3E%3Cstrong%3EDoes+the+non-compete+contain+reasonable+durational+and+geographic+limits%3F%3C%2Fstrong%3E%3C%2Fem%3E+While+most+employers+recognize+that+non-competes+are+only+enforceable+for+reasonable+durations+following+the+termination+of+employment+%28or+the+sale+of+the+business%29%2C+an+employer%E2%80%99s+standard+non-compete+duration+may+be+worth+revisiting+in+view+of+state+legislative+developments+and+in+the+context+of+generally+heightened+scrutiny+on+non-competes.+As+for+geographic+limits%2C+while+the+internet+and+other+factors+have+allowed+many+more+businesses+to+legitimately+claim+to+have+nationwide+or+even+global+reach%2C+employers+would+still+be+wise+to+consider+appropriate+geographic+limits+on+the+scope+of+their+non-competes.+For+example%2C+in+a+very+recent+decision+from+another+Delaware+Chancery+Court%2C+%3Cem%3EIntertek+Testing+Services+NA%2C+Inc.+v.+Eastman+%28Del.+Ch.+Mar.+16%2C+2023%29%3C%2Fem%3E%2C+the+Court+refused+to+enforce+a+sale-of-business+non-compete+that+purported+to+apply+%E2%80%9Canywhere+in+the+world%E2%80%9D+because+the+plaintiff+did+not+allege+that+the+acquired+business+actually+%E2%80%9Cprovided+services+globally.%E2%80%9D+Employers+%E2%80%93+even+those+with+expansive+business+operations+%E2%80%93+should+not+overlook+the+reasonable+geographic+scope+requirement+in+evaluating+their+non-compete+practices.%3C%2Fspan%3E%3C%2Fli%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3E%3Cem+style%3D%22font-size%3A+16px%3B%22%3E%3Cstrong%3EDoes+the+non-compete+apply+equally+to+all+company+employees%2C+or+does+it+differ+based+on+role+or+responsibilities%3F%3C%2Fstrong%3E+%3C%2Fem%3E%3Cspan+style%3D%22font-size%3A+16px%3B%22%3EWhile+considering+employee-specific+factors+based+on+role+and+responsibilities+is+prudent+in+the+non-solicit+context+%28as+discussed+above%29%2C+doing+so+can+be+even+more+important+in+the+non-compete+context%2C+given+that+non-competes+%28relative+to+non-solicits%29+are+more+restrictive+on+employee+activities%2C+subject+to+more+statutory+requirements+at+the+state+level%2C+and+generally+subject+to+more+scrutiny+in+courts+and+in+the+public+eye.+For+example%2C+an+employer+might+reasonably+decide+that+all+of+its+employees+should+have+non-solicits%2C+but+that+only+employees+in+a+certain+department+or+at+a+certain+level+need+also+have+non-competes+in+order+to+protect+the+company%E2%80%99s+legitimate+business+interests.+This+analysis+may+differ+widely+from+company+to+company%2C+but+it+is+an+inquiry+that+employers+would+be+wise+to+undertake%2C+especially+in+a+world+where+a+withdrawal+of+the+FTC%E2%80%99s+proposed+rule+could+lead+to+increased+scrutiny+on+non-competes+in+other%2C+unpredictable+ways.%3C%2Fspan%3E%3C%2Fspan%3E%3C%2Fli%3E%0A%3C%2Ful%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Cp%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EWhile+employers+will+soon+learn+the+fate+of+the+FTC%E2%80%99s+proposed+rule%2C+whether+the+rule+is+enacted+or+not%2C+employers+who+rely+on+restrictive+covenant+agreements+as+an+important+measure+to+protect+their+business+interests+would+be+prudent+to+begin+the+process+now+of+earnestly+evaluating+and+fortifying+their+non-competition+and+non-solicitation+covenants+in+preparation+for+either+outcome.%3C%2Fspan%3E%3C%2Fp%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Chr+%2F%3E%0A%3Ch3%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3ENotes%3C%2Fspan%3E%3C%2Fh3%3E%0A%3Cp%3E%26nbsp%3B%3C%2Fp%3E%0A%3Col%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EThe+FTC%E2%80%99s+proposed+rule+appears+not+to+cover+non-competes+with+non-worker+business+owners+%28for+example%2C+individuals+who+own+a+passive+interest+in+a+family+business+but+do+not+actually+work+for+the+business%29%2C+regardless+of+the+percentage+of+their+ownership+interest.+The+proposed+rule+would+prohibit+any+%E2%80%9Cemployer%E2%80%9D+from+entering+into+or+maintaining+a+%E2%80%9Cnon-compete+clause%E2%80%9D+with+a+%E2%80%9Cworker%E2%80%9D+%28including+employees%2C+independent+contractors%2C+volunteers%2C+and+other+service+providers%2C+whether+paid+or+unpaid%29%2C+and+defines+a+%E2%80%9Cnon-compete+clause%E2%80%9D+as+%E2%80%9Ca+contractual+term+between+an+employer+and+a+worker+that+prevents+the+worker+from+seeking+or+accepting+employment+with+a+person%2C+or+operating+a+business%2C+after+the+conclusion+of+the+worker%E2%80%99s+employment+with+the+employer.%E2%80%9D+The+proposed+rule+then+provides+for+an+exception%2C+whereby+non-compete+clauses+entered+into+by+a+person+selling+his+or+her+ownership+interest+of+at+least+25+percent+in+a+business+entity+are+excluded+from+the+rule.+However%2C+because+the+proposed+rule+defines+a+%E2%80%9Cnon-compete+clause%E2%80%9D+as+an+agreement+between+an+%E2%80%9Cemployer%E2%80%9D+and+a+%E2%80%9Cworker%2C%E2%80%9D+a+reasonable+argument+could+be+made+that+a+non-compete+between+the+purchaser+of+a+business+and+anyone+who+is+not+a+%E2%80%9Cworker%E2%80%9D+for+that+business+is+not+covered+by+the+proposed+rule.+To+take+this+argument+a+step+further%2C+query+whether+the+proposed+rule+would+cover+a+non-compete+with+a+shareholder-employee+who+sells+his+or+her+business+interest+of+less+than+25+percent+and+does+not+continue+working+for+the+business+after+the+sale+closes+%E2%80%93+would+such+a+covenant+be+a+%E2%80%9Cnon-compete+clause%E2%80%9D+within+the+scope+of+the+proposed+rule%2C+even+though+the+individual+was+never+a+%E2%80%9Cworker%E2%80%9D+for+the+buyer-employer%3F+If+the+FTC%E2%80%99s+proposed+rule+is+enacted%2C+employers+%28particularly+private+equity+sponsors+and+other+acquisitive+companies%29+may+wish+to+scrutinize+whether+this+ambiguity+is+clarified+in+the+final+version+of+the+rule.%3C%2Fspan%3E%3C%2Fli%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EFor+example%2C+Illinois+requires+that+employers+provide+%E2%80%9Cadequate+consideration%E2%80%9D+for+any+agreement+containing+a+non-compete+or+non-solicit+%28defined+as+the+employee+working+for+the+employer+for+at+least+two+years+after+signing+the+agreement+or+receiving+other+consideration+to+support+the+agreement%29%2C+advise+the+employee+in+writing+to+consult+with+an+attorney+before+entering+into+the+agreement%2C+and+provide+at+least+14+days+for+the+employee+to+review+the+agreement.%3C%2Fspan%3E%3C%2Fli%3E%0A%3Cli%3E%3Cspan+style%3D%22color%3A+%237f7f7f%3B%22%3EPresident+Biden+touted+the+proposed+non-compete+ban+in+his+recent+%3Ca+style%3D%22font-size%3A+16px%3B+color%3A+%237f7f7f%3B%22+href%3D%22https%3A%2F%2Fwww.whitehouse.gov%2Fbriefing-room%2Fspeeches-remarks%2F2023%2F02%2F07%2Fremarks-of-president-joe-biden-state-of-the-union-address-as-prepared-for-delivery%2F%22+target%3D%22_blank%22+rel%3D%22noopener%22%3EState+of+the+Union+address%3C%2Fa%3E%3Cspan+style%3D%22font-size%3A+16px%3B%22%3E%2C+and+issued+an+%3C%2Fspan%3E%3Ca+style%3D%22font-size%3A+16px%3B+color%3A+%237f7f7f%3B%22+href%3D%22https%3A%2F%2Fwww.whitehouse.gov%2Fbriefing-room%2Fpresidential-actions%2F2021%2F07%2F09%2Fexecutive-order-on-promoting-competition-in-the-american-economy%2F%22+target%3D%22_blank%22+rel%3D%22noopener%22%3EExecutive+Order+on+Promoting+Competition+in+the+American+Economy%3C%2Fa%3E%3Cspan+style%3D%22font-size%3A+16px%3B%22%3E+on+July+9%2C+2021%2C+which+precipitated+the+FTC%E2%80%99s+proposed+rule.%3C%2Fspan%3E%3C%2Fspan%3E%3C%2Fli%3E%0A%3C%2Fol%3E%0A