In a groundbreaking move set to be decided at its April 23rd meeting, the Federal Trade Commission is anticipated to approve a sweeping ban on non-compete agreements across all U.S. employers.
If approved, this rule would nullify virtually all non-compete agreements, including those covering paid staff, corporate executives, and independent contractors. The rule does include a limited exemption for non-compete agreements related to the sale of a business or substantially all its assets.
The FTC released the proposed rulemaking for public comment earlier this year and in response received over 26,000 comments.
Historically, the enforceability of non-compete agreements has been determined by state courts. The proposed rule would shift that authority to the FTC, preempting conflicting state laws. Presently, only California, North Dakota, and Oklahoma have regulations that outlaw non-compete agreements for nearly all employees. The rule does not provide employees with a private right of action.
Alternatives to non-compete agreements that employers should start considering include requiring non-disclosure/confidentiality agreements with employees and working with legal counsel to strengthen and enforce trade secret rights.
The proposed rule would establish an effective date of 60 days, and a compliance date of 180 days, after publication of a final rule in the Federal Register. It’s anticipated that the rule, if passed, will be met with substantial legal challenges.
