FTC Issues Proposal to Ban Noncompete Agreements

Last week the Federal Trade Commission (“FTC”) proposed a new rule that, as drafted, would ban noncompete clauses in the employment context and void those currently in effect. Noncompete agreements are agreements that restrict an employee’s ability to work in their industry for a certain amount of time in a certain geographic location following separation of employment. This rule could have a sweeping effect on noncompete agreements in the United States.

The potential ban will not go into effect until after the 60-day comment period, and 180 days after the FTC issues a final rule, which may look markedly different from the proposed rule. In addition, employers may still be able to protect their legitimate business interests in other ways, such as narrowly tailored non-solicitation agreements.

What does the rule say?

The proposed rule would preclude employers from entering into noncompete agreements with employees, trying to do so, or even suggesting that employees are bound by a noncompete when they are not. The rule covers not just employees but also independent contractors, interns, volunteers, and others.

The proposed rule does not explicitly extend to nonsolicitation or nondisclosure agreements, but it does say that nondisclosure agreements are “de facto” noncompetes if they would effectively preclude an employee from continuing to work in the same field. Contractual terms that require an employee to reimburse the employer for training costs if employment ends within a certain amount of time also operate as a “de facto” noncompete, according to the rule. To avoid FTC scrutiny, the payment must be reasonably related to the costs the employer incurred while training the employee.

Read the full alert at www.foulston.com

For more information Please contact a Foulston attorney:

Morgan E. Geffre - mgeffre@foulston.com - 316.291.9577

Scott C. Nehrbass - snehrbass@foulston.com - 913.253.2144