On Jan. 5, 2023, the Federal Trade Commission (FTC) proposed a new federal rule that would ban noncompete agreements across the country. Currently, each state has its own laws governing covenants not to compete and this legislation varies widely among the states.
Noncompetes are enforceable in Kentucky so long as they protect only legitimate business interests and do not place undue hardship on employees’ ability to work in the same field in the future. This question usually looks at the reasonableness of any geographic or time restrictions preventing work for the competition (or setting up a competing enterprise).
Agency cut right to the chase
We blogged in July 2022 about President Joe Biden’s executive order that asked the FTC to look at the unfairness of noncompete agreements. In that post we explored various positions the agency might take in restricting the use of noncompetes, but at the time we wrote that it seemed likely that a reasonable noncompetition clause might still be valid, perhaps with more restrictions on what the employer could impose.
The FTC, however, took a – perhaps unexpected – harder line with its proposal to ban them nationally, as California already does. The regulation would also automatically invalidate existing noncompetition agreements, which employers would have to communicate to employees so bound. (Link goes to text of proposed regulations.)
What comes next?
The agency is requesting public comments on the proposal, accepted until March 20, 2023, but the FTC could extend that deadline. As of this writing on Feb. 17, 2023, there are already about 5,340 posted comments viewable in the notice of proposed rulemaking linked to directly above.
The Chamber of Commerce along with a coalition of major business interests is against the ban, while generally employees and labor interests support it. There is also support for a ban among some promoting innovation and creativity in the business setting emanating from the collision of unique ideas and shared knowledge.
The agency after consideration of public input and its internal analysis will decide whether to enact a final rule as well as whether to incorporate any revisions. The rule, if adopted, would take effect 180 days from publication.
Business as usual, for now
We will watch the evolution of this proposal with keen interest on behalf of our business and commercial clients. Our lawyers can provide guidance or next steps should the agency adopt the rule as written or with revisions.