New FTC Rule Would Ban Noncompete Agreements

The U.S. Federal Trade Commission has broken new ground today in proposing a rule that could significantly impact employees across all industries and professions. This proposed rule prohibits employers from enforcing noncompetes on any employee or independent contractor, paid or unpaid.

This prohibition could be a game changer for how employees transition to a new job at a different company within their industry. In many industries, including those in the technology field, those in sales-related positions and medical professionals, most employees are burdened with noncompetes effectively limiting the ability of employees to work within their chosen profession and seamlessly move into a new role either with a competitor or a position with a company that could become a competitor.  

While some states, including California, ban noncompetes and narrow nondisclosure and confidentiality agreements, most jurisdictions allow noncompetes. Having a federal rule banning noncompetes would drive entrepreneurship, increase job flexibility for millions of workers and enhance competition across industries. 

The proposed rule would apply to employees and independent contractors regardless of threshold of salary. Significantly, the rule would rescind existing noncompetes and require the employer to inform employees about the rescission. 

The proposed rule would not prohibit employers from using non-disclosure and confidentiality agreements. 

Non-disclosure agreements are agreements between parties that define the scope of the confidential information and identify terms prohibiting the disclosure of such confidential information. Obligations in confidentiality agreements and terms can exist between an employee and employer, with customers, joint venture parties or other parties who may need access to confidential information for business purposes.  If the nondisclosure agreement does not act as a noncompete to limit the mobility of the employee to an alternative employer or impede the employee’s ability to establish a new business, then NDAs will not be affected by the FTC rule. 

The attorneys at Potomac Legal Group have experience negotiating and advising clients regarding noncompetes and NDAs that may impact their ability to seek alternative employment or establish a business of their own. If your employer has given you a noncompete or NDA and you are seeking a review regarding enforceability of any restrictive covenant such as a noncompete or NDA, then please contact the firm to speak with an attorney.