The action of including a noncompete clause or a standalone noncompete agreement for employees has been a commonplace option for many years – like since the Middle Ages kind of years! Therefore, noncompete agreements have truly been prevalent throughout United States’ businesses since its inception. While these binding agreements have been regulated throughout the country for well over 200 years, the Federal Trade Commission (FTC) has decided to kick 2023 off with a proposal to ban future and invalidate past non-compete agreements.
The Motivation Behind the Proposal
This recent announcement may not be entirely unexpected by legal and business professionals. As President Joe Biden campaigned and came into office, he challenged the FTC to make drastic changes to the non-compete world. But it is the severity of the FTC’s proposal that is likely drawing a high level of shock. Currently, some States have more restrictive noncompete laws than the Federal standard, but not a single state enforces a policy of outlawing noncompete agreements altogether.
The motivation behind this possible change has the potential of the employee at its core. Noncompete clauses and agreements tend to prevent employees from working for other businesses in the same field as their current employer, during and/or following employment. Such agreements can extensively limit an employee’s option to take their experience and talents elsewhere for several reasons, including wages, benefits, and location. As President Biden described in December 2020, “In the American economy, companies compete. Workers should be able to compete, too.” The goal of the proposal is to essentially open the gates to worker mobility.
Where Does this Proposal Go from Here?
The FTC’s proposal will remain open for comment over a 60-day period before ruling. Even if the proposal is accepted, there would be a six-month period before businesses would be expected to comply. In turn, the earliest it could come to fruition is in eight months, albeit highly unlikely for it to escalate that quickly because, like most federal agency proposals that would bring about massive change, there is always pushback. In this case, we can expect to see litigation throughout the court system, possibly all the way to the Supreme Court to determine if the FTC is even acting within its realm of power.
How to be Prepared
If your company is in the business of regularly entering into noncompete agreements, make sure your files are up-to-date and accurate, for both current and former employees. If this proposal eventually goes into effect, not only will newly drafted agreements be no more, but former employees will have to be formally notified of their release from their noncompete agreements as well. Keep in mind, the current proposal still allows for nondisclosure agreements, nonsolicitation agreements, and no-poaching agreements. Therefore, to be prepared for potential changes, the language in these types of agreements needs to be as specific as possible to avoid being deemed vague enough to be considered a non-compete agreement in the future.
Revolution Law Group is located in Greensboro, NC, and serves individuals and small businesses throughout the Triad and surrounding areas. To contact us please visit Revolution.law or call 336-333-7907.
The information included here is for informational purposes only, is not exhaustive of all considerations when creating documents, is not intended to be legal advice, and should not be relied upon for that purpose. We strongly recommend you consult with an attorney and do not attempt to create your own documents.