For employers, the time is ripe to think about a new strategy going forward. That strategy may focus on protection of confidential information and specific non-solicitation clauses. Regardless, the time of using non-compete agreements broadly may be coming to an end soon.
The recent announcement of the proposed rule by the Federal Trade Commission banning virtually all employment non-compete agreement makes that paragraph look really smart.
But frankly, you didn’t have to be an employment lawyer to read the tea leaves that had been percolating back in 2019. States had been passing restriction after restriction on the use of non-compete agreements. Connecticut has passed several industry specific bans on their use.
Thus, when the FTC released their proposed rule, it was the end of a long process to see a national rule come to fruition.
But at the same time, it’s also the beginning of the next chapter.
The FTC’s rule — if it ever goes into effect (more on that in a second) — would override the hodge-podge of state laws that are out there. Have an employee that moved to Washington state? With this proposed rule, you would know exactly what law to follow.
That predictability obviously comes at a cost. But California employers have been living with a ban on non-compete agreements and last time I checked, that state is doing just fine. That’s due, in part, to the fact that employers can still use other restrictive covenants like non-disclosure provisions to protect their businesses, customers and employees. In other states, non-solicitation provisions are fine.
The proposed FTC rule would likely not touch those types of agreements so long as they aren’t viewed as de facto non-competes. But non-competes are starting to fade anyways as the cost of having to enforce non-competes comes at a steep price for many employers.
Back to my earlier note though — we’re a LONG way away from this FTC rule becoming a reality. The FTC will be taking comments for 60 days and then will likely take several more months to consider those comments and synthesize them into a final rule. Even then, the proposed rule indicated that the final rule wouldn’t go into effect for another 180 days — meaning we’re likely at 2024 before the impact of this rule would be felt.
Even then, it’s virtually a certainty that any final rule would be subject to court challenges. Moreover, there will be requests for nationwide injunctions stalling implementation, just like the OSHA vaccine mandate and the Obama white collar overtime rules.
So use this time over the next year to evaluate the business case for your non-compete agreements and restrictive covenants and start planning for a day without them. It may not happen this year or next, but like I said in 2019, the use of them broadly may soon be coming to an end.