Competition? I'm second to none.

Welcome to 2023!

Let’s get right to it: We have a major legal update to share.

On January 5, 2023, the federal government proposed?a new rule?affecting business owners - a ban on all noncompete agreements.

The Federal Trade Commission’s (“FTC”) proposed rule would ban employers from entering into noncompete agreements with workers.

Are you curious about what this means for you? Keep reading. I break it down in more detail below!

Amanda

What is this and why?

The FTC’s ban would prohibit employers from entering into a noncompete agreement with any?worker, whether that worker is paid or unpaid.

• “Employer” includes “a partnership, corporation, association, limited liability company, or other legal entity.”
• “Worker” includes, not only employees, but even independent contractors, interns, externs and volunteers.

Yes, this applies to the?contractors?you hire.

The issue of noncompetes has been on the federal government’s radar for some time. Back in 2016, the Obama administration?discovered that nearly 30 million workers are subject to noncompete agreements, including low-wage workers.

The FTC argues that noncompete agreements harm worker mobility and stifle competition.

They argue that abolishing these agreements would increase workers’ earnings by close to?$300 billion per year?and would promote the formation of more new businesses to stimulate the economy.

A few states have already put a ban in place (e.g., California, North Dakota and Oklahoma). It looks like the FTC is ready to take things to a national level.

What are the consequences?

If the FTC’s rule goes into effect, this means employers would not be able to sign new noncompete agreements and already-active noncompete agreements would need to be rescinded (i.e., canceled).

There is an exception for the sale of a business.

The FTC’s rule would preempt (i.e., supersede) state law. So, even if your state allowed noncompete agreements to stand, the federal law would likely trump.

One more note: This rule could apply to things like overly-broad nondisclosure agreements or other restrictive covenants that function like noncompete agreements.

Can the FTC do this?

Short answer: Yes.

The FTC regulates marketplace competition and antitrust issues. When it determines there’s unfair competition in the marketplace, it leans on its power under the “Federal Trade Commission Act.”

Shameless plug: Yours truly published an article about the FTC back in my law school days.?Take a look here.

When will this change happen?

Possibly late this year or early next year. The FTC has only proposed the rule and the rule is now out for the general public to comment on it for the next 60 days.

From there, the FTC will publish its rule, which will go into effect 180 days after publication.

Make no mistake, should this rule go into effect, many different organizations will take legal action to try to stop its enforcement. So, we’ll see a lot of litigation around this rule for years to come.

What’s next?

For now, rely on your state’s law to determine whether or not you can sign a noncompete agreement with a worker.

Remember, some states ban noncompetes almost always (e.g., California). Some states allow them in limited circumstances (e.g., Illinois). And, some states generally enforce noncompetes (e.g., Missouri).

Talk to your attorney to make sure your contracts are legally compliant before and after the FTC’s rule takes effect.

And, if you’re unsure, reach out to us. We’re happy to help.

P.S. Whenever you're ready, here are a few ways I can help you:

1.?Follow me on LinkedIn.?I regularly post powerful legal tips. You will absolutely pick up on some gems to put into practice right away.

2. Schedule your Legal Meet & Greet.?Book a free 30-minute chat with me to learn how my team and I can help you protect your business and your intellectual property.?Book time with me here.

3. Schedule your Strategy Meet & Greet.?If you'd like me to help you strategize a business issue,?schedule 15 minutes with me here.

DISCLAIMER:

This newsletter is attorney advertising.?

This newsletter is for general informational purposes only and is not legal advice. No attorney-client relationship is formed between you and Stoutegy Law LLC or Amanda R. Moncada-Perkins.