Are Non-Competes Done?
By Kevin M. Mosher • Jan 18, 2023
There have been many efforts in the last decade to restrict companies from seeking to limit the movements of former employees. California, most notably, has effectively banned non-competes in the employment sphere, though they can be enforceable when tied to a business deal like an acquisition. Short of California’s near-total ban, other states have taken different approaches to limit the use of non-competes. For example, Massachusetts requires employers to pay “Garden Leave” during the period of the non-compete while other states like Illinois and Oregon limit non-competes to only employees who earn higher salaries.
To date, the federal government has never gotten into the non-compete mix. Until now…
On January 5, 2023, the Federal Trade Commission (FTC) issued a proposed rule that would make it illegal for companies to do any of the following:
- enter into or attempt to enter into a non-compete with a worker
- maintain a noncompete with a worker
- represent to a worker under certain circumstances, that the worker is subject to a non-compete.
Aside from the breadth of this ban on non-competes, there are a couple of other noteworthy items.
First, “workers” include independent contractors as well as employees. So, basically, everyone. It is as though the federal government does not want to allow non-competes in the United States for anyone.
Second, and perhaps the only silver lining, the restriction does not apply to other restrictive covenants you might have with your employees and independent contractors. Specifically, nondisclosure agreements (NDAs) and non-solicitation agreements are still allowed under the proposed rule; meaning the proposed rule would not be a complete ban on restrictive covenants, but admittedly that is little solace.
The Executive Branch of the federal government has never attempted to govern non-compete enforcement before making this matter of first impression that is certain to trigger a litigation response. Before you cease using non-competes or redoing your restrictive covenant agreements generally, it might be worth waiting to see if this proposed rule (assuming it is finalized) makes it passed judicial scrutiny.
Thompson Coe and myHRgenius Tip of the Week is not intended as a solicitation, does not constitute legal advice, and does not establish an attorney-client relationship.