The Federal Trade Commission has just voted, three to two, to prohibit post-employment noncompete agreements, with some limited exceptions. The ban will take effect 120 days after the final rule is published in the Federal Register. Why the ban? As discussed in this terrific new Cooley Alert, FTC Passes Sweeping Noncompete Ban, from our Labor and Employment group, the FTC noted that it views non-competes as “unfair method[s] of competition” that “restrict the freedom of American workers, suppress wages, and stifle new business and innovation.” The Alert indicates that the rule has an expansive application: in its definition of noncompetes, the rules sweeps in “certain provisions that are commonly thought to constitute alternatives to noncompetes.” In addition, the rule “broadly applies to noncompete agreements affecting virtually all workers—including employees, independent contractors, externs, interns, volunteers, apprentices or sole proprietors.” Under the rule, employers are required to “issue notices informing affected employees about the cessation of noncompete agreements.”
As described in the Alert, the rule provides exceptions for existing agreements with senior executives (as narrowly defined) and for certain types of agreements, including “sale of business noncompetes, nonsolicitation and nondisclosure agreements, in-term noncompete agreements, and contracts within specific industries or contexts.” Just like the new climate and other rules recently adopted by the SEC, the Alert advises that this rule is already the subject of litigation, with more expected. Time will tell whether the new rule survives as is. Be sure to check out the new Alert!
