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January 13, 2023

Legal News

January 13, 2023

The Future of Noncompete Clauses in Employment Contracts

The Federal Trade Commission unveiled a proposed rule that would essentially block companies from limiting their employees’ ability to work for a rival via non competition clauses. The FTC cited a significant number of employees (20-45%) in the private sector whose wages have been suppressed as a result of their inability to switch employers (which is one of the more reliable ways of securing a raise). The FTC also cited studies that show that noncompete clauses protect established companies from start-ups, which reduces competition within industries.

The public will be allowed to submit comments on the proposal for 60 days, at which point it is anticipated that the agency will move to make the proposed rule final within an effective date anticipated to be 180 days after the final version of the rule has been published. Legal challenges to the rule are also expected, which may delay the implementation of this rule.

In the meantime, non compete clauses in states that still permit them, generally have to be narrowly tailored in terms of scope (duration and geography) in order to be enforced. Employers may consider updating their employment policies and procedures in order to make sure that their trade secrets and/or proprietary information is protected and their noncompete clauses are narrowly tailored until the new proposed law takes effect.

This is not legal advice and is attorney advertising.

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