On January 5th, the Federal Trade Commission (FTC) announced a monumental rule proposal that would ban a large swath of non-compete agreements. It’s hard to overstate the effect that such a ban would have on employers. If this rule went into effect, many of the 30 million Americans currently bound by non-compete agreements would suddenly be able to pursue other employment opportunities and take their knowledge and talents elsewhere.
Beginning 180 days after the publication of the final rule, all employers will no longer be able to enter into or enforce non-compete agreements made with paid or unpaid workers. This includes employees, independent contractors, externs, interns, volunteers, apprentices and sole proprietors who provide a service to a client or customer.
Not only does the rule prohibit future non-compete agreements, but employers must also rescind agreements they’ve made with current and past workers. Employers would need to send notice to these individuals within 45 days of the rule’s compliance date. A notice template can be found here.
Additionally, de facto non-compete agreements would be banned. These may include:
- Non-disclosure agreements that are written so broadly as to prevent workers from future employment.
- Agreements requiring workers whose employment terminates within a specified time to pay for training costs, where the payment is not reasonably related to the costs of training.
Not covered by the rule are franchisees in the context of a franchisee-franchisor relationship, as well as businesses owners who have at least 25% ownership and are selling their business.
StraightforWARD Legal Advice:
Up until this point, all Ward Law states have permitted non-compete agreements. If the rule goes into effect, this would no longer be the case. In anticipation of this tectonic change, employers operating in Pennsylvania, New Jersey, New York, and Florida should contact their Ward Law firm to discuss next steps.
It’s expected that legal action will be taken against this rule. We are tracking this critical issue and will keep you informed. In the meantime, you have until March 10th to join the nearly 5,000 comments already submitted to the FTC.