2023 has not been a good year so far for non-compete provisions and it looks like the attack on those provisions is heating up even more. The thought is that such provisions unfairly limit an employee’s right to work, decrease wages and stifle entrepreneurship. The opposing thought is that employers who invest a substantial amount of time, money, and/or proprietary training in an employee, particularly an executive or a salesperson, believe that that the employer should get some protection for that investment and that the employee should not be able to offer that experience to a competitor – at least for a period of time.
The proposed Federal Trade Commission (the “FTC”) rule would apply to employees and independent contractors and would make it illegal to enter into a noncompete with a worker at all, as well as require the employer to rescind any existing noncompete agreements. The rule would not apply to a “substantial owner, substantial member, or substantial partner” which the Rule defines as “an owner, member, or partner holding at least a 25% ownership interest in a business entity.” https://www.regulations.gov/document/FTC-2023-0007-3959
The proposed legislation by Congress, called the Workforce Mobility Act, was introduced in 2021 but died at that time. That legislation has now been reintroduced. https://www.govtrack.us/congress/bills/117/hr1367 The Workforce Mobility Act, similar to the FTC proposed rule, eliminates most non-compete agreements by limiting the use of them to business sales and dissolution of partnerships. The Act also gives employees a right of action against their employers for failure to abide by the act, including recovery of damages and attorneys’ fees.
President Biden showed his support for the elimination of non-compete agreements in his recent State of the Union address. See, https://news.yahoo.com/biden-criticizes-noncompete-agreements-state-204016427.html?fr=sycsrp_catchall
Given the heat on non-compete agreements from multiple federal sources, it is likely that something will be enacted that limits or prohibits them. So, this is an issue employers should follow.
STAY TUNED!