NON-COMPETES LIKELY TO BE GONE WITH THE WIND?

THIS CAN ROCK YOUR BUSINESS WORLD!

Recently, the Federal Trade Commission (“FTC”) proposed a new federal rule which would ban the use of non-compete clauses by employers and would apply to not only employees but also independent contractors.

So what exactly would the rule cover? According to the FTC, the proposed rule would make it specifically illegal for an employer to:

• Enter into or attempt to enter into a non-compete with any 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.

Under proposed rule, employers would be required to retroactively cancel any non-competes that in existence and actively inform workers that any non-competes are no longer in effect. Any other employment restrictions that serve similar effects to a non-compete will also be subject to the rule.

How would the FTC’s ban on non-competes affect your business? Non-compete clauses are used by employers to keep key employees from being poached by competitors as well as to protect trade secrets and customer lists. The FTC’s complete ban on non-competes would have a substantial effect upon protecting employees and put at risk the hours and years of training just to have the employee leave, will have a substantial adverse impact upon business unless there are independently negotiated customer and trade secret agreements in place which will protect the business. Specifically, the proposed rule does not limit independent agreements restricting employees and others from using confidential information, customer lists, trade secrets, and the like. PLEASE CALL WEISS LLP FOR MORE INFORMATION.

NOTE: The FTC action is a follow up to the many states that have these kinds of laws in place, notably Massachusetts (salaried employees only for now), Washington, DC, North Dakota, Oklahoma and to some extent, California, Washington State, Rhode Island, Virginia, and a host of others where these laws are pending and could be likely to pass (Maryland, Massachusetts, New Jersey, Connecticut, New York, and Oregon).

UPDATE AS OF OCTOBER 2024: On August 20, 2024, the U.S. District Court for the Northern District of Texas in Ryan LLC v. FTC set aside the proposed FTC rule banning non-competes and held that the rule shall not be enforced or otherwise take effect nationwide as was originally planned on September 4, 2024.