FTC Proposes Ban on Non-Competition Agreements
If you use non-competition agreements or other restrictive covenants to protect the goodwill and trade secrets of your business, the Federal Trade Commission (FTC) is proposing a rule that could obliterate those protections. The FTC recently proposed a rule to ban non-compete clauses, claiming they hurt workers and harm competition. If enacted, this proposed rule would:
- Prohibit employers from entering into non-compete agreements with employees and independent contractors.
- Make it unlawful for employers to maintain non-compete agreements with their employees and independent contractors.
- Require employers to rescind non-compete agreements and notify workers of the rescission within the deadline to be set by the final rule.
Although the rule includes an exception for non-competes that were negotiated in connection with the sale of a business, this exception is limited to restricting competition from a person who sold their business if the seller was a substantial equity owner (at least 25% of the stock or membership interest) at the time of the sale.
The rule has yet to be enacted and will undergo a public comment period before it can go into effect. There is already strong opposition to the rule, and it is far from clear whether, even if enacted, the rule will be upheld by state and federal courts. Whether the FTC’s proposed rule is enforceable, this development highlights why businesses should speak to an employment attorney to review their employee agreements, including non-competes, non-solicits, and non-disclosure agreements. This is particularly true in light of the non-compete reform law enacted in Massachusetts in 2018, which placed statutory limits on non-competition agreements in the Commonwealth.
If you want more information about these developments or want to discuss ways to protect your business’s trade secrets and goodwill through employment agreements, please contact your Bernkopf attorney or David Hansen at 617-790-3440 or [email protected].