Assault on Non-Competes Goes Federal
Last Month, the Federal Trade Commission (FTC) set forth a proposal that would go beyond any of even the most restrictive state bans on non-compete agreements (NCAs). Unlike many such regulations, this would apply to virtually all employers, not just federal contractors. The key points of the “Proposed Rule” are as follows:
“Non-Compete” is defined broadly to cover virtually anything that could be considered a non-compete, including after a person’s employment with a given employer ends;
The initial version makes no distinction between high-level and lower-level employees. However, the FTC has requested feedback about the concept of different provisions for executives or highly-paid or -skilled workers.
ALL categories of workers – whether or not actually employees – would be covered, even volunteers.
While this is supposedly a ban on non-competes, the FTC apparently envisions extending it to other types of agreements, such as non-disclosure or confidentiality agreements, etc., on the basis that they touch on the original purpose of the proposed ban. A limited exception would be “carved out” for owners selling a business who hold a minimum 25 percent ownership of that business.
The Rule would be effective – possibly to the beginning time, if they could figure out how. All existing non-competes would have to be rescinded, with specific notice requirements to the individuals involved.
The summary in National Law Review states the following:
If a final rule takes effect and significantly resembles the Proposed Rule, many companies will be required to change their practices and procedures around protecting trade secrets and other competitively sensitive information. At this stage, there remains a great deal of uncertainty regarding when a final rule will take effect and how broadly it will apply.
The required 60-day comment period will expire March 10.
ALSO, Congress has revived discussion of the “Workforce Mobility Act,” which is intended to do much of what the FTC intends to accomplish, but with fewer restrictions. One major difference is that it would not invalidate existing NCAs.