As Clear as Mud — The Future of Non-Competes
By: Liam McMillin and Tommy Rogers*
There seems to be a lot of news these days involving non-compete agreements. Many companies are wondering whether their current non-competes are still enforceable, or if they should put a new one in place. Here’s the long-and-short:
In 2023, non-competes seem to be on the chopping block, but nothing has changed yet.
You may remember in January, the Federal Trade Commission (FTC) announced a proposed rule to ban all non-competes. The ban would prevent future non-competes from being issued, while also voiding all existing contracts. Last month, we learned that the FTC is expected to vote on the proposed rule change in April of 2024.
But the FTC isn’t the only agency with non-competes in its sights. The National Labor Relations Board (NLRB) joined the FTC in condemning non-competes. NLRB officials said requiring workers to sign non-competes is usually illegal. NLRB General Counsel Jennifer Abruzzo said non-competes violate labor law “unless the provision is narrowly tailored to special circumstances justifying the infringement on employee rights.”
The FTC and NLRB staff members contend non-competes undermine job mobility and business innovation, while suppressing wages. It is estimated that 18% of US workers are bound by non-compete contracts. The FTC estimates that a ban on non-competes would expand career opportunities for 30 million Americans and increase wages by nearly $300 billion annually.
Employers argue the FTC’s proposed rule will likely increase labor turnover and their training costs. Some employers say they are more likely to invest in extensive training for their employees if they knew the employee wouldn’t take that training and use it for a competitor. Not to mention that these employees have access to the employer’s trade secrets. A ban on non-competes could put those trade secrets at risk.
What should Employers do now?
- Review existing non-competes and determine if they are enforceable under current law. Reach out to our team at Bricker Graydon if you have any questions.
- Take a deep breath and continue using well-drafted non-competes as they remain enforceable. The proposed rule doesn’t go into effect until September at the earliest. Word on the street is that the FTC will delay until April 2024. Even then, it’s likely to be met with injunctions and legal challenges.
- Monitor the studies, but don’t make any drastic changes at this time. Companies that are ahead of the curve will likely regret being so proactive.
The future of non-competes is murky, but rest assured the Labor & Employment team at Bricker Graydon is wading through the waters of non-competes and the FTC. Reach out with any questions, we’re here to help.