This past Tuesday, April 23, the Federal Trade Commission announced that it intends to issue a “Non-Complete Clause Rule” with respect to employment contracts. Such non-compete clauses generally prohibit employees from leaving an employer for a competitor for a certain amount of time. The FTC says that such non-compete clauses in employment contracts are “an unfair method of competition,” and therefore a violation of law, effective 120 days after publication in the Federal Register, which is likely in a few days.
Senior executives (as defined) will be exempt from this rule. All other employees covered by such agreements are to be notified by their employer that such clauses are no longer enforceable. Further, new non-compete agreements, even for senior executives, will be subject to the ban. The FTC, in Tuesday’s announcement, estimates that up to 30 million workers in the United States currently have some sort of non-complete agreement with their employer.
Years ago, non-compete agreements were widely used by veterinarians when hiring associates to work in a practice; they were used to deter an associate from leaving to join another practice or to start a practice – usually within a certain distance from their employer. Such agreements, while effective for the employer, were the often the cause of unpleasant litigation between veterinarians and have fallen out of favor over the years. California, Minnesota, Oklahoma, and North Dakota have also passed laws restricting or prohibiting these agreements ahead of the FTC’s ruling. The US Chamber of Commerce filed suit on Wednesday in US District Court in Texas to block the proposed rule.
I don’t know what your opinion is of this ruling, and I know that there are many smart people on both sides of this issue, but I do have a question for you: have you ever heard of or known an employee who requested that he/she be covered by a non-compete agreement? If your answer (like mine) is “no,” then we have an illustration of how the balance of power has now moved a little closer toward the middle between employee and employer.
Jim Kroman
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