DISCLAIMER: This post is intended only as general information about the pending FTC Ban on non-competition clauses. It is not legal advice and does not establish an attorney-client relationship. If you need specific legal advice, please contact an attorney to discuss your unique circumstances.
We’ve been monitoring the Federal Trade Commission (FTC) ban on non-competition clauses. As a former Blue Ribbon Small Business and legal counsel to other small businesses, we maintain a friendly relationship with the United States Chamber of Commerce. Earlier this year, “the Chamber” invited us to share our Economic Impact Disaster Loan (EIDL) experience with the White House Economic Development Council. So, we were not surprised to see the Ryan, LLC v. FTC case filed in Texas. In light of the US Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo, we are expecting greater scrutiny of the FTC Ban and some additional exceptions to it. However, New York businesses should prepare for the ban by considering carefully whether non-competition clauses truly achieve their goals.
The Role of the FTC and Public Policy
The FTC is tasked with promoting interstate commerce and business. The goal is to encourage the introduction of new products, services, and innovations that serve the public good. The FTC encourages competition, believing it results in better options for US citizens. Additionally, the Commission is aware that society at large suffers when businesses prevent people who can and want to work from doing so. The ban on non-compete clauses is intended to address these issues.
The Evolving Legal Landscape
In New York, we’ve been anticipating this change, as we already had numerous restrictions on non-compete clauses. If you’re feeling a bit anxious about this development, let’s explore why this might actually be an opportunity rather than a setback.
Reevaluating Your Objectives
The first step is to revisit the original objectives of your non-compete clause. What were you hoping to protect? Understanding this will help identify alternative strategies, such as:
- Confidentiality Agreements. Protect sensitive information without restricting an employee’s future employment opportunities.
- Non-Disclosure Clauses. Prevent employees from sharing proprietary information with competitors.
- Non-Solicitation Provisions. Stop employees from poaching clients, customers, or other employees after they leave your company.
None of these mechanisms have been banned. A lot of the confusion and alarm comes from the inclusion of all these provisions in one document. This is why I repeatedly remind businesses that they should never use or sign agreements they do not fully understand.
Adapting Existing Contracts
In light of the FTC Ban, it’s crucial to review and revise your existing contracts. Here are some recommendations:
- Consult with an Employment Attorney. You are already dealing with enough responsibilities in your business. Let a lawyer help you understand the implications of the FTC ban and ensure appropriate modifications are made to your contracts.
- Revise Your Contracts and Other Employee Documents. Make sure you’re getting the full benefit of alternative provisions, such as confidentiality agreements, NDAs, and non-solicitation agreements.
- Communicate with Anyone Currently Under a Non-Competition Agreement. Unless the ban is overturned or delayed, you must give notice that you will not enforce the provision.
Still confused by the FTC ban?
What the FTC Got Wrong In It’s Recent Ban of Non-Competition Clauses