FTC: Noncompetes and Their Impact on Car Dealerships

As CEO and President of Colorado Automobile Dealers Association, Matthew Groves shares insights about the new rules around the noncompete agreements. The non-compete agreements that exist at your car dealership are likely to no longer be legal. The Federal Trade Commission, the federal department that regulates the employee-employer relationship, recently passed a final rule banning non-compete agreements from employment contracts.

Understanding the FTC’s Noncompete Agreements Ruling

Non-compete agreements have long been used to protect employers against unfair competition from employees leaving the organization. However, after this ruling, almost all noncompetes will be held unenforceable.

Exemptions to the Noncompete Ban

There are two exemptions where noncompetes will continue to be allowed:

  1. Senior Executives: Defined as policy makers within the organization making more than $151,000 a year.
  2. Prior Business Owners: Those selling the business for the first time.

For all other employees, the noncompete clause will be held unenforceable 120 days from the publication of this rule. While the rule hasn’t been published yet, it is widely speculated that the effective date will be on or around August 20th, 2024.

How Employers Can Move Forward

So, what’s the best way for employers to move forward with these new noncompete rules? There are two options:

  1. Rewrite Employee Contracts: Exclude noncompete requirements.
  2. Maintain Current Contracts: Expect that the noncompete language included cannot be enforced once an employee is no longer with the dealership.

Employer Obligations

No matter what you choose, as a dealer, you have an affirmative obligation to let your employees know that noncompetes are no longer valid. While this is the final issuance of the rule within the rulemaking process, an organization has already determined that it will challenge this ruling.

Preparing for the New Rule

Whether or not a court case is to occur over this rule, we encourage dealers to be prepared for implementation of this rule by August 20th, 2024. Employers at car dealerships should determine how they will handle current employee contracts and notify employees of this change in noncompetes.

FTC: Prohibiting Noncompete Agreements for Employees

To learn more about the FTC’s ruling and how it affects your dealership, watch the video below where Matthew Groves explains the implications and next steps in detail:

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About The Colorado Auto Dealers Association (CADA) 

Founded in 1933 and officially incorporated in 1938, the Colorado Automobile Dealers Association (CADA) began as a collective effort by dealers to contest a federal excise tax. Today, CADA serves as a dynamic trade association dedicated to advocating for the interests of Colorado’s auto dealers. It addresses legislative, regulatory, and operational challenges, ensuring that the state’s automotive sector and driving public are well-represented and supported.

CADA keeps dealers well-informed through various channels, including our publications like Above the Fold, the Bulletin (see archives), and regular updates on LinkedIn. We are also committed to the education of dealers, providing essential resources to help them understand and adapt to new legislation and industry trends, particularly following the conclusion of each legislative session in May.