Does your business utilize non-competition agreements? Do you
have a non-compete agreement in your job? If so, you want to take
note of recent national trends that may impact whether these
agreements will continue to be enforceable.
Historically, in Ohio – and in most states – courts
have upheld non-compete agreements provided they were tailored to
protect legitimate business interests. States including California,
Minnesota, Colorado, Illinois, Virginia, and Washington, to name a
few, have already prohibited or severely limited the use of
non-compete agreements. Yet by and large, the federal government
has left the issue to the states to regulate and enforce as they
see fit.
Enter the Federal Trade Commission (FTC), which proposed a new rule
in January 2023 that would ban the use of non-compete agreements,
except in limited circumstances. The proposed rule would make it
illegal for employers to:
- enter into or attempt to enter into a noncompete with a worker;
- maintain a noncompete with a worker; or
- represent to a worker, under certain circumstances, that the worker is subject to a noncompete.
The proposed rule would also apply to independent contractors
and anyone who works for an employer, even unpaid workers.
The FTC's proposed rule comes after the agency found that
non-compete agreements constitute an unfair method of competition
and thus a violation of Section 5 of the Federal Trade Commission Act.
It should be noted that the proposed rule would not apply to other
employment restrictions, like non-disclosure agreements. The FTC is
expected to take a vote in April 2024 on adoption of the final
proposed rule.
Following on the heels of the proposed rule, the National Labor
Relations Board (NLRB), has signaled its support of a ban on
non-competes.
Via a letter dated May 30, 2023, the NLRB general counsel
issued a memo outlining the agency's belief that overbroad
non-compete agreements chill employees from exercising their rights
to take collective action under the National Labor Relations Act.
While the NLRB didn't go as far to opine that all non-competes
would be unlawful, it's another signal from a federal agency
that non-compete agreements are becoming disfavored.
Whether in response to the FTC-proposed rule or just in accordance
with national trends, New York has become the most recent state to
pass legislation banning employer use of non-competes. On June 20,
2023, the New York State Assembly passed a bill that would ban
employers from utilizing non-compete agreements in the future, with
some limited exceptions. If signed by the governor, New York would
join the list of states curtailing the use of these restrictive
covenants.
As a growing number of states – and now the federal
government – have taken real and proposed action against
non-compete agreements, it is critical that employers who utilize
these restrictive covenants keep track of these fast-moving
developments in the law. Now more than ever, employers should
review their employment agreements and ensure that they are
protecting legitimate business interests in the least restrictive
ways possible.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.