On Jan. 5, the Federal Trade Commission responded to the Biden administration’s argument that noncompete clauses hurt employees and the economy, and proposed a sweeping federal ban.
After a 60-day public comment period, the proposed rule can be published, and if no changes are made, it will go into effect as a final rule. This will represent a tremendous shift for employers and employees nationwide.
Noncompete clauses generally restrict former employees from seeking or accepting employment, for a certain time period, with a competitor of the former employer.
Noncompetes are distinct from nonsolicits, which prohibit soliciting customers and/or prospective customers; nonpoach clauses, which prohibit soliciting employers’ employees for hire; and confidentiality agreements, which protect employers’ confidential information and trade secrets.
The proposed rule addresses only noncompetes, which state law currently governs.
The FTC’s rule would make most noncompete provisions unenforceable, which is a serious change. Employers and employees need to be aware of several issues before entering into new employment agreements.
The proposed ban has a significant downside for employers.
The central role of noncompete clauses in...
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