Non-compete agreements are standard practice in several situations related to employment and business generally. Among your new hire paperwork at your job, there is a decent chance that you promised not to compete against your employer after you leave. Any severance agreement you have ever signed also likely limits your ability to work for a competitor.
These agreements — usually restricted in geography, time, and industry — may soon become illegal and unenforceable if entered into between workers and employers. The Federal Trade Commission (“FTC”) has proposed a new Rule which would have that very effect. It would also require employers to notify employees that their non- compete agreements are unenforceable if such agreements were required as a condition of employment previously.
Right now, the FTC is taking comments pursuant to the Administrative Procedure Act. Once the comment period closes in March 2023, the FTC will revise its rule based on the comments provided. If implemented, the new Rule will almost- certainly be challenged in federal court.
What Should We Do?
If you are an employer, it would be prudent to look over your onboarding package to determine whether you are routinely requiring employees to sign a non- compete agreement. If so, you should stay on top of the topic to determine whether you will have a duty to notify all current and prior employees that their non-compete agreements are unenforceable.
You should also consider updating your non-compete agreement template so that it is separate from other common onboarding agreements such as non-disclosure agreements. Often, these agreements are part of one large document. Their inclusion with other terms could potentially invalidate the entire agreement absent a severability clause. If they must remain together, you should make sure there is a severability clause to ensure the invalidated non-compete provision does not affect the rest of the document.
If you are an employee, you should temper your new-found freedom to compete with other promises often made which are enforceable. For example, employees generally cannot leverage “trade secrets” to compete against their former employer.
Almost every job in the United States involves access to sensitive information which competitors would love to get their hands on. If you resign and take some of this data with you, your employer can still take action against you even without a non-compete agreement.
Similarly, every employee owes their employer a duty of loyalty while employed. If you begin negotiating a lateral transfer to a new employer in the same industry, an argument can be made that you violated your duty of loyalty if those negotiations involve prohibited acts.
Finally, other agreements may limit what you can and cannot do. For example, non-solicitation agreements are fairly common and may impose consequences for poaching your coworkers as you leave for a new employer. While your employer would not be able to keep you from competing against them, they can prevent you from trying to entice your coworkers to join you.
Do you want to know more about how the FTC’s new rule could impact your employment relationship? Please feel free to reach out at (903) 221-9180 or email our Client Services Director at firstname.lastname@example.org.