At Clearwater Business Law, we strive to keep our clients informed about significant legal changes that impact their businesses. Recently, the Federal Trade Commission (FTC) announced a groundbreaking rule that bans non-compete agreements nationwide. In addition, the Corporate Transparency Act (CTA) introduces new requirements for businesses, emphasizing the need for transparency and accountability. Here’s a detailed look at these changes and how they may affect your business.
FTC’s Ban on Non-Competes
On April 23, 2024, the FTC issued a final rule banning non-compete agreements to promote competition, protect workers’ freedom to change jobs, and foster innovation and new business formation. Here are the key points:
Scope of the Ban:
The FTC’s rule declares that enforcing non-competes constitutes unfair competition. Consequently, non-compete agreements for the vast majority of workers will no longer be enforceable after the rule’s effective date.
Senior executives, representing less than 0.75% of workers, are an exception. Existing non-competes for senior executives can remain in force, but no new non-competes can be established or enforced for them.
Economic Impact:
The FTC estimates that the ban will result in the creation of over 8,500 new businesses annually and increase worker earnings by approximately $524 per year on average.
Health care costs are projected to decrease by up to $194 billion over the next decade due to this rule.
Worker Freedom and Innovation:
By removing the constraints of non-compete agreements, workers can pursue new job opportunities, start businesses, and bring new ideas to market. This is expected to drive innovation, with an estimated increase of 17,000 to 29,000 more patents each year over the next decade.
Alternatives to Non-Competes:
The FTC emphasizes that businesses can still protect their investments through trade secret laws and non-disclosure agreements (NDAs). These alternatives provide a legal framework to safeguard proprietary information without restricting employee mobility.
Implementation and Compliance:
The rule will become effective 120 days after its publication in the Federal Register. Employers must notify workers, other than senior executives, that their non-compete agreements will not be enforced. The FTC has provided model language to assist employers in this process.
Corporate Transparency Act (CTA) Requirements
The Corporate Transparency Act, enacted to combat illicit activities such as money laundering and fraud, requires certain businesses to disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). Key aspects of the CTA include:
Reporting Requirements:
Companies must report the names, birth dates, addresses, and unique identifying numbers (such as a passport or driver’s license number) of their beneficial owners.
Beneficial owners are individuals who own or control at least 25% of the company or who exercise substantial control over the company.
Exemptions:
Certain entities, such as large operating companies, regulated entities, and inactive entities, may be exempt from these reporting requirements.
Compliance Deadlines:
Existing companies have until January 1, 2025, to submit their beneficial ownership information to FinCEN. New companies must comply within 30 days of their formation or registration.
Penalties for Non-Compliance:
Failure to comply with the CTA can result in civil and criminal penalties, including fines and imprisonment.
Impact on Businesses:
The CTA aims to enhance corporate transparency and deter illegal activities. However, businesses must prepare to meet these new reporting obligations by implementing robust compliance programs and ensuring accurate and timely disclosure of beneficial ownership information.
Practical Steps for Businesses
Given these significant regulatory changes, Clearwater Business Law advises businesses to take proactive steps to ensure compliance and mitigate risks. Here are some recommendations:
1. Review and Revise Agreements:
Businesses should review their existing non-compete agreements and identify which agreements will be affected by the FTC’s new rule. Alternative provisions, such as NDAs and trade secret protections, should be strengthened to safeguard business interests.
2. Notify Employees:
Employers must notify affected employees about the non-enforcement of their non-compete agreements. Utilizing the FTC’s model language can streamline this process and ensure compliance.
3. Implement Compliance Programs:
To meet the CTA requirements, businesses should establish or enhance their compliance programs. This includes identifying beneficial owners, maintaining accurate records, and preparing timely reports for FinCEN.
4. Seek Legal Counsel:
Engaging with legal experts can help businesses navigate these regulatory changes effectively. At Clearwater Business Law, our team is ready to provide tailored advice, ensure compliance with the new rules, and address any potential legal risks.
Have More Questions?
If you have any questions about how these changes may affect your business or need assistance with compliance, please don’t hesitate to reach out to us. Contact us at (727) 785-5100 or schedule an appointment online for a comprehensive review of your existing business agreements and compliance programs.
Stay informed, stay compliant, and protect your business with Clearwater Business Law.