Explaining the Federal Trade Commission’s Proposed Ban on Most Non-Compete Agreements

What Is The Federal Trade Commission’s Proposed Rule Regarding Non-Compete Agreements And Clauses, And Why Are They Making A Change?

In brief, the rule will prohibit non-compete agreements and clauses in almost all instances. There are some exceptions, but the application is very broad overall. The FTC believes the current legal framework has resulted in the use of non-compete clauses with negative effects on competition in labor markets, as well as in product and service markets. This includes reduced wages for all workers across the labor force.

The Change Sounds Drastic. What Workers Will This Apply To?

It is. Indeed, one FTC Commissioner commented that it is a dramatic departure from hundreds of years of precedent and would prohibit conduct that 47 states allow. Still, they believe change is necessary, indicating situations where non-competes are overbroad, can scare or intimidate workers, and are harmful to the labor force.

As for application, worker is defined broadly to mean “a natural person who works, whether paid or unpaid, for an employer. The term includes, without limitation, an employee, individual classified as an independent contractor, extern, intern, volunteer, apprentice, or sole proprietor who provides a service to a client or customer.”

Importantly, businesses can still protect their interests through means similar to non-competes. They can use non-solicitation and confidentiality agreements, as well as intellectual property laws. It is essential to register trademarks, patents, and copyrights, and for trade secrets that are not registered, you must implement safeguards and procedures to ensure such information is secured and protected.

Is There More To It Than Businesses Being Required To Stop Using Non-Competes When The Rule Goes Into Effect?

The rule will also apply retroactively, and businesses must notify current and previous workers individually that their non-compete is nullified. Putting an ad out, for example, will not suffice. Individualized notices like this can be burdensome for small and mid-sized businesses. We’ve been talking with our clients about the rule and will work with them on notices and other associated matters.

Is It A Good Idea For A Business To Establish A Relationship With A Business Attorney, Regardless Of Size?

Yes, it is. An ideal time to start is at business formation. Then, if nothing else, it’s about risk prevention in a rapidly evolving business environment. For example, some businesses may be unaware of the FTC rule when it goes into effect or think it only applies to new workers. As our client, Starr Law Firm will proactively inform you about state and federal law changes that can impact your business.

Why Do Businesses And Their Owners Choose Starr Law Firm?

We’re a local, family-owned firm focused on business and real estate law and estate planning and probate. Our experienced, collaborative legal team delivers personalized service and works synergistically to provide comprehensive business solutions for our clients. Whether you have questions about the non-compete ban, succession planning, business formation, registered agents, estate and probate, or another matter, call us and schedule a consultation.