A photo of business people having discussion in board room. Male and female professionals are seen through glass. They are working in office.
A photo of business people having discussion in board room. Male and female professionals are seen through glass. They are working in office.

A new Federal Trade Commission rule that bans non-compete agreements will require insurance agencies around the country to revise their personnel policies immediately to avoid running afoul of the law.

These agreements, which bar salespersons from going to a competitor, have been a hallmark of the insurance agency ecosystem. Besides prohibiting future non-competes, the rule also nullifies all existing agreements, which may require your agency to reach out to all former producers to inform them that their non-compete is null and void.

While the U.S. Chamber of Commerce filed a lawsuit the day after the new rule was announced, agency owners should not expect that a court will put a stay on its implementation. It’s better to start complying immediately to avoid opening your firm up to potential lawsuits.

Importantly, the new rule leaves intact an employer’s right to require staff to sign non-solicitation agreements to keep them from poaching clients if they go to a competing firm. This is crucial for insurance agencies since they often compete locally or regionally, making it more tempting for producers to call on their old brokerage’s clients.

One part of the new rule that didn’t get much attention is the FTC’s decision to allow non-compete agreements to be used in the context of the sale of a business. The original proposed rule issued in January 2023 would have required a seller to own at least 25% of a business to be subject to a non-compete agreement.

This means that owners who are looking to sell their agencies later down the road, will likely still be subject to non-competes imposed by future buyers, as is standard practice today.

Existing agreements for senior executives can remain in force under the final rule. However, employers may not enter into or attempt to enforce any new non-competes, even if they involve senior executives.

The rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions.

The next steps

This is a significant human resources development and agencies that use these agreements will have to act quickly. If you have any current non-competes, or if you require new employees to sign one, you should consult with your legal counsel to discuss your procedures going forward and the steps you’ll have to take to comply with the new rule.

If you have non-competes in effect for former or current employees, you will be required to provide notice to them that you will not be enforcing any agreements against them (except in the case of senior executives, if you choose).

Also, if you have non-solicitation agreements, you’ll need to revisit their language as well. Employers are cautioned against trying to backdoor a non-compete into a non-solicitation agreement. The FTC rule bars employment agreements that are so broad that they effectively become non-competes.

To help employers comply with the requirement that they inform current and former employees that their non-compete agreements are null and void, the FTC has included model language in the final rule that employers can use to communicate to workers.

The Commission said that employers have several alternatives to non-compete agreements that still enable firms to protect their investments without having to enforce a non-compete.

Trade secret laws and non-disclosure agreements both provide employers with well-established means to protect proprietary and other sensitive information. Researchers estimate that over 95% of workers with a non-compete already have an NDA.

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