In a landmark move, the Federal Trade Commission (FTC) voted this week to ban most non-compete agreements. Many employee advocates consider this a significant step towards ensuring worker mobility and fair competition in the job market, whereas many employers consider this a setback to protecting valuable company intellectual property. The new rule is set to go into effect in 120 days, but its future is uncertain. Pro-business groups are sure to take legal action to block its implementation.
Non-compete agreements, which are contractual agreements between an employer and an employee that restrict the employee’s ability to compete with the employer after termination of their employment, have long been a contentious issue. These agreements often impose limitations on an employee’s ability to work for a competitor or start a competing business within a certain geographical area and for a specific time period.
While many non-compete agreements legitimately protect proprietary information and trade secrets, they have increasingly been used against employees who have no access to company proprietary information. Workers bound by non-compete agreements often face limited job opportunities and reduced bargaining power. The inability to switch to a competitor or start their own business can hinder professional growth, innovation, and entrepreneurship. Consequently, proponents of the FTC rule argue that these agreements often perpetuate income inequality and limit economic mobility.
Business groups counter that noncompete agreements are critical for protecting proprietary information and intellectual property and urge lawmakers to strike a balance between the interests of employees and employers. But some companies are welcoming the rule because it will remove a barrier to hiring employees that are currently bound by non-compete agreements with other companies.
Importantly, the rule does not ban other methods of protecting proprietary information, including nondisclosure agreements. Employers are therefore still able to restrict employees from sharing confidential information with competitors or using it to gain an unfair advantage.
Contact Tom Luebbering with questions about this latest FTC ruling and non-compete agreements.
