BANKS KEEPING CLOSE EYE ON FTC Non-Compete Activity

by Brett Taylor

The enforceability of non-compete agreements has long been considered an issue of state law. The majority of states, Arkansas included, require non-compete agreements to be reasonable in time and geographic scope and limited to protecting only the employer’s legitimate business interests, such as specialized training provided by the employer, the employer’s trade secrets and confidential information, and the employer’s customer lists.

However, on April 23, 2024, the Federal Trade Commission (FTC) issued its Final Rule banning almost all non-compete agreements nationwide. The Final Rule is scheduled to take effect on September 4, 2024, and will supersede existing state law.

But the Final Rule is not really final. To date, at least three lawsuits have been filed challenging the FTC’s authority to issue the ban, and there is a strong possibility that the Final Rule will be delayed and may even be struck down before it ever takes effect. If the Final Rule ultimately survives legal challenge, covered employers will be prohibited from entering into new non-competes with very limited exceptions. Additionally, employers will be required to notify current and former workers that their existing non-competes are no longer enforceable.

The good news (or bad, depending on which side you’re on) is the FTC’s ban does not extend to banks, and at least for now, banks can continue utilizing non-compete agreements where appropriate (though the ban will extend to bank affiliates such as holding companies, mortgage brokerages, and insurance agencies). The FTC’s Final

Rule acknowledges the limits of the FTC’s jurisdiction and leaves the question of whether other agencies will enforce or apply the ban to entities under their own jurisdiction to be answered by those agencies. And it is unlikely that banking regulators will attempt to enforce or otherwise apply the FTC’s noncompete ban unless and until it survives all of the pending legal challenges.

Still, the non-compete ban should be recognized for what it is: part of a broader push by the executive branch to eliminate these agreements in all employment relationships. Last year, the General Counsel for the National Labor Relations Board (NLRB) opined that the proffer, maintenance, and enforcement non-compete provisions in employment contracts and severance agreements violate the National Labor Relations Act except in limited circumstances. And last month, the Federal Deposit Insurance Corporation (FDIC) proposed revisions to its Statement of Policy on Bank Merger Transactions that prohibit noncompete agreements with employees of businesses or branches that the banks are forced to sell to gain antitrust approval for proposed mergers.

While the legal challenges to the FTC’s ban on non-competes are being sorted out in the courts, the most prudent course for those employers affected is to work with experienced employment counsel to review your existing non-competes with both current and former employees and consider what alternatives are available to protect your business interests (such as increasing security measures, limiting access to sensitive information to those who need to know, and using well-drafted confidentiality and non-solicitation agreements).

Editor’s note: Brett Taylor is a member of the Rose Law Firm. The opinions expressed are those of the author.