FTC Votes to bar Most Noncompetition Agreements, But Don’t Throw Out Your Noncompete Yet!

Emily J. Meister

The Federal Trade Commission (often referred to as the “FTC”) voted today to bar non-competition agreements or “noncompetes,” both retroactively (for all but top corporate officials and senior executives holding a policy-making position and making not less than $151,164 annually) and in the future. More specifically, employers would be prohibited from: entering into or attempting to enter into non-competition agreements with employees, workers and independent contractors; maintaining a non-competition agreement with workers, employees or independent contractors; or representing to a worker, contractor or employee that he is subject to a non-compete.  Those employers with existing non-compete agreements in place for some or all of their employees or workers would further be required to provide notice to impacted employees that their non-compete agreement will not be enforced against them in the future.

The announced rule is significant since it is estimated that one out of every five workers in the United States is subject to a noncompete and various industries, such as the healthcare industry, have routinely utilized such agreements.  But employers and employees should not jump to throw out their existing non-competes just yet.  First, the FTC’s new rule does not become effective until one hundred twenty (120) days after its publication in the Federal Register.  Second, numerous organizations and entities, including the U.S. Chamber of Commerce, have previously indicated their intention to file suit challenging the rule and to seek a nationwide injunction. 

In addition, it is notable that the FTC’s rule does not ban the use of various alternatives or accompaniments to noncompetes, such as non-disclosure agreements (so long as such agreements are not so broad as to mimic or function as a noncompete) and statutory protections for trade secrets.

For further information on these matters, updates on litigation challenging the rule or assistance in interpreting your agreements or options, please contact the attorneys of Law Firm Carolinas.

Corporate LawLitigation