The Federal Trade Commission Issues Final Ruling on Noncompete Agreements; What Will This Mean for Employers and Employees?

By: Michael P. Sawicki, Esq.

There has been a nationwide movement regarding the enforceability of employment-related noncompete agreements and certain restrictive covenants.  On April 23, 2024, the Federal Trade Commission (FTC) issued a final ruling that employers could no longer stop their employees from going to work for rival companies, effectively banning noncompete agreements in the future, as well as those currently in place. The final rule defines “noncompete clause” as a term or condition of employment that either “prohibits” a worker from, “penalizes” a worker for, or “functions to prevent” a worker from, “(i) 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; or (ii) operating a business in the United States after the conclusion of the employment that includes the term or condition.” Thus, the definition in the Final Rule is clarified to go beyond express noncompetes to cover a broader range of provisions.

There are limited exceptions to the new rule for senior executives which are defined as employees “in policy-making positions” who make at least $151,164 annually. Existing noncompetes for senior executives can remain in force; however, employers are prohibited from entering into or enforcing new noncompetes with senior executives. Employers will be required to notify nonexecutive employees bound by an existing noncompete that it will no longer be enforceable. The FTC’s commentary on the final rule clarifies that “forfeiture-for-competition” clauses, where the agreement imposes adverse financial consequences on a former worker as a result of competition with the employer following termination of the employment relationship, is unlawful.

The FTC feels that this action will help create jobs, raise wages and increase competition among businesses. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business or bring a new idea to market,” the commission’s chair, Lina M. Khan stated. She estimated the decision would lead to the creation of 8,500 start-ups in a year and up to $488 billion in increased wages for workers over the next decade. The new ruling also has the support of President Biden.

In the final rule, the Commission has determined that a noncompete is an unfair method of competition, and therefore a violation of Section 5 of the FTC Act, for employers to even enter into noncompetes with workers and to enforce certain noncompetes. According to the Commission, employers have alternatives to noncompetes that still enable companies to protect their proprietary information, such as trade secret laws and non-disclosure agreements. The prohibition against noncompete clauses does not apply to a noncompete clause that is entered into pursuant to a bona fide sale of a business entity, of the person’s ownership interest in a business entity, or of all or substantially all of a business entity’s operating assets.

The final rule will become law 120 days after it is published in the Federal Register, but legal challenges have already been filed which could delay or block the change.

More to follow regarding this final ruling and its impact on employers and employees as this important change in the law develops. In the meantime, employers can take certain actions to mitigate the impact of the final rule, including:

  • Auditing existing noncompetes to determine which workers are “senior executives” or otherwise exempt from the final rule’s prohibition on noncompete clauses.
  • Determining whether any “senior executives” are currently not subject to noncompetes and negotiating with such individuals to enter into noncompetes prior to the final rule’s effective date.
  • Considering alternative retention strategies with deferred compensation such as retention bonuses or adjusting equity vesting schedules to encourage long-term employment.
  • Reviewing other restrictive covenants, such as confidentiality agreements and nonsolicitation clauses.

Effective October 1, 2023, Maryland enacted a revised partial restriction on employment-related noncompete agreements under Senate Bill 591. This public policy change was designed to protect lower wage employees and allow unrestricted movement in the workforce, even if their employment competes with their prior employer. The change in Maryland law prohibits employers from imposing a noncompete, conflict of interest, or similar agreement on employees earning 150 percent of the minimum wage.

If you would like to get more information on the creation of a data security policy and speak to an attorney about your needs, please contact Batoff Associates, P.A. at 410-864-6211.

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Maryland Law and Non-Compete Agreements: Are They Still Enforceable?

By: Michael P. Sawicki, Esq.

Non-compete agreements are contracts between employers and employees that prevent employees from competing with their employers for a specific period of time after termination of employment. These agreements are meant to protect the employer’s business interests, trade secrets, and confidential information. The enforceability of such agreements is usually tied to a duration and reasonableness standard.

There has been a nationwide movement, however, regarding the enforceability of employment-related non-complete agreements and certain restrictive covenants.  New York is poised to become the fifth state in the nation to impose a complete ban on employment-related noncompete agreements, joining California, Oklahoma, North Dakota, and Minnesota.

Maryland recently enacted a revised partial restriction on employment-related non-compete agreements with the enactment of Senate Bill 591, effective October 1, 2023. Maryland has linked the enforceability of an employment-related non-compete with an employee’s earnings tied to the minimum wage, thereby protecting employees who fall below the mandated criteria from employer mandated non-competes. This public policy is designed to protect lower wage employees and allow unrestricted movement in the workforce, even if their employment competes with their prior employer.

Maryland employers are now prohibited from imposing a non-compete, conflict of interest, or similar agreements on employees earning 150% of the minimum wage. With the recent increase of the minimum wage rate to $15.00 per hour effective January 1, 2024, this translates to $22.50 per hour, or an estimated annual income of approximately $46,800. Importantly, the new threshold will automatically increase with any future increments in the minimum wage.  (Under the prior law, employers were prohibited from entering a non-compete agreement with employees who earn $15.00 per hour or less, or $31,200 annually.)

This newly revised Maryland law can have detrimental effects to employers seeking to protect their carefully earned business and client relationships. Until there is court interpretation of the new law, the application to salaried employees could be subject to interpretation and debate. The new law does not, however, apply to the enforceability of non-solicitation agreements protecting client lists and other proprietary client information. A business still has enforceable rights to protect its confidential information.

If you would like to get more information on the creation of a data security policy and speak to an attorney about your needs, please contact Batoff Associates, P.A. at 410-864-6211.

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IRS Updates Contributions to 401(k) Plans and IRAs

By: Michael P. Sawicki. Esq.

On November 1, 2023, the Internal Revenue Service announced that that the amount individuals can contribute to their 401(k) plans has increased from $22,500 for 2023 to $23,000 for 2024.

The limit on annual contributions to an IRA increased to $7,000, up from $6,500. The IRA catch‑up contribution limit for individuals aged 50 and over was amended under the SECURE 2.0 Act of 2022 (SECURE 2.0) to include an annual cost‑of‑living adjustment of $1,000 for 2024.

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan remains $7,500 for 2024. Therefore, participants in such plans who are 50 and older can contribute up to $30,500, starting in 2024.

The income ranges for determining eligibility to make deductible contributions to traditional IRAs and Roth IRAs each increased for 2024. Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. If neither the taxpayer nor the spouse is covered by a workplace retirement plan, the phase-outs of the deduction do not apply. The phase‑out ranges for 2024 are as follows:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to $77,000 – $87,000, up from $73,000 – $83,000.
  • For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to $123,000 – $143,000, up from $116,000 – $136,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to $230,000 – $240,000, up from $218,000 – $228,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

The deductible limit on charitable distributions for 2024 increased from $100,000 to $105,000.

Details on these and other retirement-related cost-of-living adjustments for 2024 can be found in Notice 2023-75, available on IRS.gov.

If you have any questions regarding these updates from the IRS, please contact Batoff Associates. P.A. at 410-864-6211.

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Major Corporate Governance Changes are Coming. Are You Ready for Compliance with the Corporate Transparency Act?

By: Michael P. Sawicki, Esq.

Effective January 1, 2024, the Corporate Transparency Act (CTA) goes into effect which will require almost every legal entity incorporated, organized or registered in a state to disclose information related to its owners, officers and controlling persons with the Federal Crimes Enforcement Network (FinCEN). The intent of the CTA is to reduce terrorist financing, money laundering and any other illegal activities. The CTA provides criminal (a $10,000 fine or 2 years in jail) and civil penalties (up to $500 per day) for individuals who knowingly provide false or fraudulent information or who fail to comply with reporting requirements.

Companies who will be required to report under the CTA include domestic and foreign privately held entities. A domestic privately held entity is a corporation, limited liability company, or other entity formed by filing a document with the secretary of state or similar office under the laws of that state. A foreign entity includes any private entity formed under the laws of a foreign country that is registered to do business in any state in the US. There are certain exemptions for large operating companies, SEC reporting companies, insurance companies, tax exempt entities and subsidiaries of exempt companies. A large operating company is exempt if it employs more than 20 full time employees in the US with more than $5 million in gross receipts or sales and operates from a physical office in the US.

Reporting companies formed prior to January 1, 2024, will have one year to comply with the CTA by filing initial reports. Reporting companies created or registered on or after January 1, 2024, will have 90 days upon receipt of their creation or registration documents to file initial reports. FinCEN will be creating an online portal called the Beneficial Ownership Secure System to collect and store reports. Reports filed with FinCEN will not be available to the public or subject to the Freedom of Information Act.

Companies subject to the CTA will be required to provide identifying information for the beneficial owners of the reporting company which is an individual who directly or indirectly either exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company. The CTA provides factors for determining substantial control (subject to certain exemptions) including: (i) serving as a senior officer of the company, (ii) having authority over senior officers or a majority of the board of directors, (iii) having substantial influence over important decisions, or (iv) having any other type of substantial control over the company.

Companies will be required to report all identifiable information regarding the company as well as the name, DOB, home address, US passport or driver’s license number and an image of the document for each beneficial owner of the company.

Now is the time to review and update your company’s compliance plan and determine if you will be subject to the CTA.

If you have any questions or would like to get more information regarding the Corporate Transparency Act, please contact Batoff Associates, P.A. at 410-864-6211.

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Data Security: Do You Have Adequate Safeguards in Place?

By: Michael P. Sawicki, Esq.

For most companies that deal with confidential information like financial information, proprietary business plans, personal data, health information, or credit card processing, data security should be a top priority. The added complexity of cloud services and flexible work environments have altered how and where your employees connect to the office and where your company’s data resides. It is more important than ever that you protect your digital information from unauthorized access, corruption, or theft throughout its entire lifecycle.

A data security policy describes how a business handles confidential information and personal data. Its primary function is to protect the data and create transparency for the consumer and employees about how their data is processed, protected, and shared. A data security policy regulates the usage, management, and monitoring of data in an organization. Its primary goal is to protect all data used, managed, and stored by a company. Data security policies are typically not required by law, but can help organizations comply with data protection standards and regulations.

Types of data security include hardware security, software security, and legal security. Organizations are legally obliged to protect customer and user data from being lost or stolen or being compromised. Data security is also crucial to preventing the reputational risk to an organization that accompanies a data breach. Legal security can mitigate risk to the company in the event of a data breach.

The Maryland Personal Information Protection Act (MPIPA) was enacted to ensure that Maryland consumers’ personal identifying information is reasonably protected, and if it is compromised, they are notified so that they can take steps to protect themselves. Maryland data privacy laws specifically define what counts as personal information. This includes a Maryland resident’s first and last name or their initials. However, this information must be in combination with one or more of the following:

·  Official ID numbers (e.g., Social Security, passport, driver’s license, or tax identification numbers);

·  Financial numbers (e.g., account, credit card, or debit card numbers);

·  Personal health information, such as details of health insurance policies;

·  Biometric data; and

·  Genetic information.

If there is a security breach, businesses are required to conduct a prompt investigation into the breach and inform affected consumers within 45 days of the breach. Notices must be made to consumers in writing. Any notice must urge the consumer to change his/her passwords and security questions and must detail all compromised information, provide the business’s contact information, and include a statement that informs consumers how they can get advice on preventing identity theft via the Federal Trade Commission and Office of the Attorney General.

Compliance under MPIPA consists of organizations implementing a reasonable level of security to protect personal information. This requires creating, adopting, and maintaining a written security policy. It also requires businesses to take reasonable steps to prevent unauthorized access to personal information.

If you would like to get more information on the creation of a data security policy and speak to an attorney about your needs, please contact Batoff Associates, P.A. at 410-864-6211.

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