Nationwide Trend Reaches Federal Government: Federal Trade Commission Bans Non-competes

Last year, Minnesota took a step towards increased competition and freedom for workers when it banned the use of non-compete agreements for employees.  It was part of a nationwide trend (in employee-friendly states) in reducing restrictions on employees who leave an employer but wish to continue working in their chosen field.  Well, the federal government has caught up to the states, and in effort to reduce the “widespread and often exploitative practice imposing contractual conditions that prevent workers from taking a new job or starting a new business,” banned non-competes for employers, with some exceptions.

The ban is comprehensive with regard to new non-compete agreements.  However, already existing non-competes for senior executive employees are allowed to remain in effect.  Any agreements in effect for non-senior executive employees will be no longer enforceable after the rule’s effective date, which is 120 days after the final rule was published in the federal register.

Non-compete clauses are defined as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (1) seeking or accepting work in the U.S. with a different person where such work would begin after the conclusion of the employment that includes the term or condition, or (2) operating a business in the U.S. after the conclusion of the employment that includes the term or condition.”

Employers are prohibited from attempting to enter into a non-compete clause, enforcing or attempting to enforce a non-compete clause, or representing that a worker is subject to a non-compete clause.  The Federal Trade Commission (FTC) now describes these clauses as unfair methods of competition.

The rule does not impact or limit the enforcement of state laws that restrict non-competes, as long as they do not conflict with the final rule.  In Minnesota, non-compete agreements are already illegal, so no changes are needed there.  For those in other states, make sure you’re checking your local regulations to make sure you are in compliance with the most restrictive law.

As for alternatives to non-compete agreements, trade secret laws, non-solicitation, and non-disclosure agreements work to protect employers from the poaching of clients or the release of proprietary information.  The FTC encourages employers to compete to retain their employees by “improving wages and working conditions.”  This rule will likely be challenged by an employer at some point, but until it is, it is important to abide by the rule.  If you, or your organization need assistance in modifying employment agreements, or writing them so they are consistent with the law, contact Wiley Reber Law, for legal advice that works.