On January 5, the Federal Trade Commission (FTC) proposed a new rule that would prohibit the use of non-competition agreements nationwide. Employers commonly require employees to sign non-competes that prohibit an employee from working for a competitor within a particular geographic area for a specified time period after their employment ends. The FTC estimates that 1 in 5 American workers are bound by a non-compete, so this rule would impact approximately 30 million people if enacted.
The proposed rule requires employers to notify employees currently bound by a non-compete that their non-compete is rescinded within 180 days of the publication of the final rule. It remains unclear how rescinding preexisting agreements would impact any additional consideration given to employees to sign the non-compete (such as retention bonuses, stock options, or other incentives).
Here is a link to the FTC’s press release, which argues non-competes suppress wages and unfairly limits career opportunities for workers. The proposed rule is expected to be challenged in the court system by business interests. Potential grounds include whether the FTC has the legal authority to modify contracts nationwide through the enactment of a rule, and whether the FTC can require the rescission of preexisting contracts (as opposed to a more narrow ban on entering new non-competes prospectively).
Employers with existing restrictive covenants (including non-competition, non-solicitation, or confidentiality agreements) should immediately consult with legal counsel to determine whether their contracts should be amended in anticipation of the final rule.
Roger W. Feicht is a shareholder with Gunster’s Labor & Employment Practice Group. He regularly advises businesses and individuals on the drafting, negotiation, and enforcement of non-competition and non-solicitation agreements, company policies, and employment agreements.