FTC Proposes Rule to Ban Non-Compete Clauses

Last month, the Federal Trade Commission proposed a new rule that would ban employers from imposing non-compete clauses on their employees or independent contract workers. In addition, the rule would require employers to cancel existing non-compete agreements.

What is a non-compete agreement?

A non-compete agreement is a legal document that prevents employees from working for competing businesses for the time stated in the agreement.

Business owners may use non-compete agreements to protect trade secrets, retain top talent, and prevent employees from sharing confidential information, starting a competing business, soliciting customers, and more. Companies use non-compete agreements for workers across industries and job levels, from doctors to warehouse workers.

What is the FTC proposing?

The FTC’s proposed rule would generally prohibit employers from using non-compete clauses. Specifically, the FTC’s new rule would make it illegal for an employer to:

  • Enter into or attempt to enter into a non-compete with a worker;
  • Maintain a non-compete with a worker; or
  • Represent to a worker, under certain circumstances, that the worker is subject to a non-compete.

The proposed rule would apply to independent contractors and anyone who works for an employer, whether paid or unpaid. It would also require employers to rescind existing non-competes and actively inform workers that they are no longer in effect.

The proposed rule would generally not apply to other types of employment restrictions, like non-disclosure agreements. However, other types of employment restrictions could be subject to the rule if they are so broad in scope that they function as non-competes.

The FTC is seeking public comment on the proposed rule. The FTC will review the comments and may make changes in a final rule. The comment period is open through March 10. To make submit a comment, please visit this website.

How should employers prepare?

Although the scope of change is still unclear and the FTC’s proposed rule faces opposition, employers should consider taking action to protect their interests should the FTC’s proposed rule go into effect. To prepare for change, employers may wish to review and update their non-competes to ensure they are up-to-date with current laws and best practices.

And, even though the FTC has excluded non-solicitation, non-disclosure, and confidentiality agreements from the proposed rule, employers should also review these agreements to ensure they serve the purpose for which they were intended and do not double as non-compete agreements.

Employers should stay informed regarding the proposed changes and make adjustments accordingly.

If necessary, consulting a trusted legal advisor for help protecting trade secrets and confidential information may be wise in light of the FTC’s proposed rule.

Help is available

The business attorneys at O’Reilly Rancilio review, negotiate, and draft employment, non-solicitation, confidentiality, consulting, and independent contractor agreements. Our attorneys also consult with clients and prepare employee handbooks and other documents related to employment policies and employment or independent contractor agreements. For more information, please call 586-726-1000 or visit our website at www.orlaw.com.

Categories: Business