Yesterday, the Federal Trade Commission announced that a special meeting will take place on April 23rd, next Tuesday, during which the commission members will vote on whether to ban non-compete agreements in the United States.
Why is this happening now?
FTC has been considering a ban for a long time. In January of last year, they issued a proposed rule that would ban all non-compete agreements. As is typical with proposed rules, they allowed members of the public to comment on the rule. Since they received over 26,000 comments – from individuals, companies, and various commercial and lobbying organizations – the commission took its time to consider the proposed rule.
What does the ban look like?
Under the proposed rule, not only will employers be prevented from entering into non-compete agreements with their workers, but they will also have to tell their former workers that their noncompetes are null and void.
How likely is the ban to pass?
The proposed rule faced a lot of opposition from organizations such as the US Chamber of Commerce, American Medical Association, several US Senators, the Restaurant Law Center (the lobbying arm of the National Restaurant Association) and the anti-trust section of the American Bar Association.
What will happen on April 23rd?
FTC will first vote whether to authorize the public disclosure of the proposed final rule. If the vote clears, they will present the final rule to the public, and then will vote on whether to approve the final rule.
Can I watch the vote?
Yes, you can. The public can watch the meeting via webcast, which will be available on the day of the event shortly before the meeting starts at FTC.gov. I will post the link to the vote on my blog and my LinkedIn profile (if you want to follow me).
If the rule passes, what effect will that have on current non-compete agreements?
Even if FTC votes to approve a ban on non-compete agreements, there is usually a significant lag between the approval of the rule and when it will go into effect. Meanwhile, employers and employees should expect that several lawsuits will be filed attempting to prevent the rule from going into effect. These lawsuits are likely to be filed in jurisdictions that are favorable to non-compete agreements, such as Texas or Florida (two of the most favorable non-compete enforcement jurisdictions in the USA), and are likely to seek an injunction (a court order) stopping the application of the non-compete ban.
Thus, employees who think that they no longer have to comply with their non-compete restraints in jurisdictions that enforce them, such as Texas, are doing so at their own peril.
The likely grounds for challenging a non-compete ban is that the FTC does not have legal authority to issue such a ban.
Leiza Dolghih is the founder of Dolghih Law Group PLLC. She is board certified in labor and employment law and has 16+ years of experience in commercial and employment litigation, including trade secrets and non-compete disputes. You can contact her directly at leiza@dlg-legal.com or (214) 531-2403.
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