individual subsidiaries and affiliates.”20 Accordingly, “[f]or example, if a business operates in several States and its operations in each State are organized as their own corporation, assuming these businesses and the parent company meet the criteria for a common enterprise, the head of each State corporation would not be a “senior executive.”21 In short, only a limited subset of corporate officers are likely to have policy-making authority under the Rule.ConclusionAssuming the Noncompete Rule takes effect just after Labor Day in 2024, employers need to assess whether existing noncompete agreements with their “senior executives” can remain enforceable. Confirming compensation exceeds the $151,164 threshold will be simpler than determining that a company officer with significant responsibility in a company or firm has policy-making authority under the Rule. As a result, it will be a summer to analyze contracts and executive roles at organizations nationwide.1 Non-Compete Clause Rule, 89 Fed. Reg. 38342 (May 7, 2024) (to be codified at 16 C.F.R. pts. 910, 912). 2Ryan LLC v. FTC, No. 3:24-cv-00986 (N.D. Tex.).3 89 Fed. Reg. at 38502–03 (to be codified at 16 C.F.R. § 920.2(a)(1)).4 89 Fed. Reg. at 38502 (to be codified at 16 C.F.R. § 910.1).5 89 Fed. Reg. at 38503 (to be codified at 16 C.F.R. § 910.2(b)(1)).6See 89 Fed. Reg. at 38502 (to be codified at 16 C.F.R. § 910.1); 89 Fed. Reg. at 38504 (to be codified at 16 C.F.R. § 910.3(a)); 89 Fed. Reg. at 38503 (to be codified at 16 C.F.R. § 910.2(a)(2)).7 89 Fed. Reg. at 38502 (to be codified at 16 C.F.R. § 910.1).8Id.9Id.10 89 Fed. Reg. at 38418.11SEC v. Brown, 740 F.Supp. 2d 148, 161 (D.D.C. 2010) (cleaned up).12See 89 Fed. Reg. at 38502 (to be codified at 16 C.F.R. § 910.1).13See SEC v. Brown, 740 F.Supp. 2d at 161; SEC v. Gallagher, No. CIV. A. 87-3904, 1989 WL 95252, at *7 n.10 (E.D. Pa. Aug. 16, 1989) (characterizing company controller as an officer).14 89 Fed. Reg. at 38502 (to be codified at 16 C.F.R. § 910.1). 15Id.16 89 Fed. Reg. at 38418.17Id

milies, or other insiders. Based on the foregoing, the FTC concludes that several nonprofit health care entities will be in many circumstances subject to the Final Rule’s purview.Assuming it survives any legal challenge, the Final Rule will go into effect on September 4, 2024. However, several lawsuits—including one in the Northern District of Texas and another in the Eastern District of Pennsylvania—have already been filed questioning the of the final rule under the Major Questions Doctrine, the Non-Delegation Doctrine, and the Chevron Doctrine. Should the Final Rule survive these challenges, any attempt by the FTC to exercise its jurisdiction over nonprofit entities will also likely face legal challenge.In the meantime, nonprofit and not-for-profit entities, including nonprofit health care entities, should work closely with legal counsel to determine whether they are in fact impacted by the FTC’s non-compete ban given the FTC’s anticipated approach to determining non-profit status. 89 Fed. Reg. 38342, 38356. 15 U.S.C. § 44. 89 Fed. Reg. 38342, 38449. 89 Fed. Reg. 38342, 38356. 89 Fed. Reg. 38342, 38357.Id.Id.Id. (citing In the Matter of Preferred Health Servs., Inc., FTC No. 41-0099, 2005 WL 593181, at *1 (Mar. 2, 2005)).Id. (citing In the Matter of Boulder Valley Individual Prac. Assoc., 149 F.T.C. 1147, 2010 WL 9434809, at *2 (Apr. 2, 2010)).Id. (citing Redlands Surgical Servs. v. Comm’r, 242 F.3d 904, 904-05 (9th Cir. 2001) and St. David’s Health Care Sys. v. United States, 349 F.3d 232, 239 (5th Cir. 2003)).Id. (citing Fam. Tr. of Mass., Inc. v. United States, 892 F. Supp. 2d 149, 155-156 (D.D.C. 2012); I.R.S. G.C.M. 39, 674 (Oct. 23, 1987); and Bubbling Well Church of Universal Love, Inc. v. Comm’r, No. 5717-79X, 1980 WL 4453 (T.C. June 9, 1980)).

e in the text does Congress expressly limit the FTC’s enforcement mechanisms to adjudications; in fact, Congress does just the opposite by empowering the FTC to issue rules.At least one other lawsuit remains pending in the Middle District of Florida, Properties of the Villages v. FTC, 5:24-cv-316 (M.D. Fla.) and others may be forthcoming. On August 15, 2024, the court in Properties of the Villages issued a preliminary injunction staying the Non-Compete Rule as to the plaintiffs in that case.Key TakeawaysEmployers should continue to ensure that they are positioned to comply with the Non-Compete Rule, as discussed in prior client alerts regarding the Proposed Rule and Final Rule, should any appeals court reinstate the regulation. Furthermore, the issue of restrictive covenants in employment agreements remains an area of legislative focus across the country. Thus, employers should continue to stay abreast of state laws that may limit or prohibit non-compete agreements. 16 C.F.R. § 910.1; 89 Fed. Reg. 38342.See generally 15 U.S.C. § 46(g); 15 U.S.C. § 57a.

The Federal Trade Commission’s (FTC) Non-Compete Rule, which was scheduled to become effective on September 4, 2024, was set aside last month by US District Judge Ada Brown of the Northern District of Texas in Ryan LLC v. FTC, 2024 U.S. Dist. LEXIS 117418 (N.D. Tex. July 3, 2024).The Non-Compete Rule, 89 FR 38342 (implementing 16 C.F.R. § 910), would have prohibited, broadly, most non-compete agreements, with limited exceptions for existing non-compete agreements with “senior executives” — as defined by the Non-Compete Rule, and non-compete agreements made in conjunction with the bona fide sale of a business. Employers would also have been permitted to prosecute violations of non-compete agreements that accrued prior to the Non-Compete Rule’s presumed effective date.However, immediately after the FTC issued the Non-Compete Rule on April 23, 2024, Ryan, LLC sued to set it aside on the basis that the FTC violated the Administrative Procedure Act (APA) because the FTC’s issuance of the rule was arbitrary and capricious. The US Chamber of Commerce, and other industry groups, later joined the lawsuit as plaintiff-intervenors challenging the Non-Compete Rule on the same basis as Ryan, LLC.On July 3, 2024, Judge Brown issued a preliminary injunction prohibiting the FTC from enforcing the Non-Compete

greements encompass a broader scope of material beyond what is traditionally defined under trade secret laws and are “routinely enforced by courts.”39 “The final rule” is slated for implementation on September 2, 2024. While the Commission supports a future reliance on the power of NDAs, it remains to be seen whether this increased reliance will eventually garner for NDAs the same scrutiny that non-competes grew to face. Looking forward, employers using NDAs should be wary of language that restricts employee mobility, lest such a provision be read by the courts as an unenforceable non-compete. Precedent would indicate that following the demise of non-competes, NDAs that do not restrict alternative employment for an employee may still serve as a less protective but useable means of safeguarding intellectual property.*This article was drafted with assistance from Olivia Lane, a student at Wake Forest School of Law and summer law clerk at Burr & Forman.Footnotes1 Non-Compete Clause Rule, 89 FR 38342, 38431.2 Id. at 38342.3 See Id. at 38427.4 Id. 5 Id. at 38428.6 Uniform Trade Secrets Act with 1985 Amendments (Feb. 11, 1986) at sec. 1(4).7 Non-Compete Clause Rule, supra note 1, at 38427.8 Confold Pac., Inc. v. Polaris Indus., Inc., 433 F.3d 952, 959 (7th Cir. 2006).9 See Id. 10 Non-Compete Clause Rule, supra note 1, at 38427.11 Non-Compete Clause Rule, supra note 1, at 38429.12 Non-Compete Clause Rule, supra note 1, at 38428.13 Non-Compete Clause Rule, supra note 1, at 3842814 Non-Compete Clause Rule, supra note 1, at 38426.15 Natarajan Balasubramanian, Evan Starr, & Shotaro Yamaguchi, Employment Restrictions on Resource Transferability and Value Appropriation from Employees (Jan. 18, 2024), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3814403.16 See, e.g., Rachel S. Arnow-Richman et al., Supporting Market Accountability, Workplace Equity, and Fair Competition by Reining In Non-Disclosure Agreements, UC-Hastings Research Paper 2-6 (Jan. 2022), https://papers.ssrn.com/sol3/.?abstra

ade secrets are stolen or misused. You will want to act fast if you learn of the misuse of your trade secrets or if you suspect that they are being misused. In creating your plan, you should include your lawyer, IT, and HR. Legal options can include written demands for return of trade secrets, restraining orders obtained from a court, and state and federal litigation for damages (compensatory and punitive) resulting from the misuse and/or theft of trade secrets. You will also want to preserve records related to your trade secrets, including measures you took to protect the secrets, when/where/how the misappropriating party obtained secrets, and when/where/how you learned of the theft, misuse, and/or misappropriation of your trade secrets. This often involves IT obtaining email or download logs and security checking entry/access logs. Having a plan in place before anything happens can increase the chances of a positive outcome and the protection of your trade secrets. Federal Register, 89 FR 38342, available athttps://www.federalregister.gov/d/2024-09171.SeeRyan LLC v. Fed. Trade Commission, Civ. Action No. 3:24-CV-00986-E (N.D. Tex. April 24, 2024); Chamber of Commerce of the U.S.A. v. Fed. Trade Commission, Case No. 6:24-cv-00148 (E.D. Tex. April 24, 2024); ATS Tree Servs., LLC v. Fed. Trade Commission, No. 2:24-cv-1743 (E.D. Pa. April 25, 2024). The U.S. Chamber of Commerce filed a motion to stay the effective date of the Non-Compete Clause Rule pending final determination of the legal challenge. Ryan LLC v. Fed. Trade Commission, Doc. 47, Civ. Action No. 3:24-CV-00986-E (N.D. Tex. May 10, 2024). The FTC recognized that alternatives to non-competes for the “protection of trade secrets and other confidential information” include “enforcement of intellectual property rights under trade secret and patent law, NDAs, and invention assignment agreements, … fixed duration contracts [for employees], and competing on the merits to retain workers by providing better pay and working co

into any new noncompetes. Existing noncompetes will still be effective for senior executives.Employers still have viable alternatives to protect their legitimate business interests, such as non-disclosure agreements and statutory trade secret protections.Three lawsuits are currently pending to contest the Rule.Congress empowered the Commission to “prevent persons, partnerships, or corporations” from engaging in unfair methods of competition. Section 5 of the Federal Trade Commission Act (“FTC Act”) prohibits “unfair methods of competition” and empowers the Commission to enforce that prohibition. Under this authority, the Commission ruled that it is an unfair method of competition, and therefore a violation of Section 5, for employers to enter into noncompetes with workers, and to enforce certain currently existing noncompetes after the effective date.The uniform ban is scheduled to take effect 120 days after publication in the Federal Register. The Rule was published on May 7, 2024, (89 FR 38342), and will therefore be effective September 4, 2024, unless it is delayed by a court (see discussion below).To whom does the Rule apply?The Noncompete Rule applies differently to “workers” and to “senior executives” with existing noncompetes. Under the final Rule, existing noncompetes with “workers” become unenforceable after the effective date of the Rule – September 4, 2024. “Worker” is defined broadly, regardless of industry, pay rate, or worker classification. Existing noncompetes with “senior executives” – defined as those in “policy-making positions” making more than $151,164.00 annually – will remain enforceable.After September 4, 2024, however, employers are banned from entering into any new noncompetes with employees, even with senior executives. The Noncompete Rule is subject to some exceptions:The Rule does not apply to noncompetes that prohibit an employee from competing against the employer while still employed.It does not apply to noncompetes entered into pursuant to a b