Non-Compete Agreements Under Fire: The FTC's Proposed Ban
By: Susanna Visconti – Attorney, ScottHulse PC
For decades, non-compete agreements have been a commonplace tool for businesses to protect trade secrets and prevent employees from taking sensitive information to competitors. However, the Federal Trade Commission (FTC) has now proposed a sweeping new rule that could upend this practice across most U.S. workplaces.
A Brief History
The FTC has long scrutinized overly broad non-compete clauses that unnecessarily restrict workers’ mobility and marketplace competition. Historically, non-compete disputes were largely handled at the state level through differing laws and precedents. The FTC began signaling potential action in 2021 with increased focus on their negative impacts, particularly on lower-wage workers.
The Proposed Rule
In January 2023, the FTC issued a proposed rule that would effectively ban employers from entering into non-compete agreements with workers across most job roles and levels. Key points include:
- Prohibiting new non-compete clauses and requiring employers to rescind existing ones
- Covering not just direct non-compete terms but other contractual restraints on future employment
- Applying across the workforce, with potential narrow exceptions for certain highly compensated executives
- Aimed at promoting open competition and worker mobility without overreaching restrictions
Potential Impacts
If implemented as proposed, the rule could have seismic effects across the business landscape by severely limiting non-compete usage and enforcement abilities. Potential impacts include:
For Businesses/Employers:
- Loss of a key legal tool to safeguard intellectual property and trade secrets
- Increased employee turnover and direct competition from departing workers
- Operational impacts depending on reliance on non-compete protections in certain industries
For Workers/Employees:
- Enhanced ability to change jobs and pursue opportunities without contractual restraints
- Potential boost to wage growth and bargaining power due to increased mobility
- Reduced barriers for entrepreneurship and starting competing businesses
Navigating the Changes
This rule is expected to be challenged in the courts and if that occurs, the implementation deadline may be at least delayed for some time. We will monitor and update if significant changes occur.
Staying ahead of these potential seismic shifts will require expert guidance. ScottHulse PC stands ready to advise businesses on compliance with evolving non-compete regulations while protecting intellectual property through alternative means. We also counsel individuals on their rights regarding restrictive employment agreements.
With deep experience in business transactions and commercial litigation, we provide comprehensive strategies tailored to our clients’ needs in this rapidly changing landscape. Contact us today to discuss how the proposed FTC rules may impact your interests and operations.
©ScottHulse, P.C. This material is provided for informational purposes only. It is not intended to constitute legal advice nor does it create a client-lawyer relationship between ScottHulse and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material.
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