FTC Proposes Rule Banning Noncompete Agreements

We’re currently monitoring the Federal Trade Commission’s proposed rule that would ban the use of noncompete agreements with workers nationwide, including with independent contractors. If the rule becomes final, existing noncompete agreements will have to be rescinded within 180 days, and employers will have to send individual notices to their current and former workers that the noncompete is no longer in effect. The proposed rule is expected to be widely challenged, but it’s definitely one to keep an eye on. 

In January 2023, the FTC announced a rule proposal to retroactively ban noncompete agreements with all workers nationwide. (Note: The proposed ban would not eliminate noncompetes in most business purchase agreements.) Specifically, the proposal would mean that businesses would no longer be able to restrict former employees from going to work for competitors or starting their own competing business. The FTC has even estimated that banning noncompetes would double the number of companies founded by former employees. Even attempting to get a worker to sign a noncompete agreement would violate the FTC’s proposed rule. 

The FTC’s proposal is a long way from becoming the law of the land. And any final rule could look very different from what has currently been proposed. The FTC is currently seeking comment on a number of closely related issues, such as whether the proposed ban should apply to franchisees, senior executives, or other highly paid workers. 

Until then, Ohio law permits noncompete agreements as long as they are reasonable:

• The restrictions imposed by the noncompete can be no greater than what is necessary to protect the employer’s legitimate business interests.
• The restrictions cannot impose an undue hardship on the former employee. 
• And the restrictions cannot injure the general public.
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And while we will continue to monitor this proposal and its potential impact on small businesses, it’s a good time to consider other ways to protect critical business information:

• The FTC’s proposed rule doesn’t appear to impact non-solicitation agreements. There is a world of difference between telling workers they can’t get another job if they leave your employment versus telling workers they can’t steal your customers, clients, fellow employees, and other critical relationships. 
• If some variation of the FTC’s proposal becomes law, then it will be much more important to ensure you are protecting your business’s confidential information and trade secrets. Workers with access to confidential information should be required to sign confidentiality agreements and should be trained regularly on maintaining confidentiality. 
• While the FTC’s proposal is the one currently making headlines, don’t forget that it’s important to keep a close eye on potential changes at both the state and local levels. This has become increasingly complicated as employees have adopted “work from anywhere” since the pandemic. 

If you have questions about your company’s noncompete agreements or other ways of protecting confidential and proprietary information, please schedule a consultation below.

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