Noncompete Rulemaking Update – Employees Still Waiting.

By: Attorney J. Paul Porter

Employees have at least 6 months more waiting time left for a major regulatory employment law change.

On January 5, 2023 the FTC proposed a rule that would make existing and future non-compete agreements illegal.

Since then, the FTC voted to extend the public comment period by 30 days with one member of the Commission stating she would have voted for a 60 day extension “[g]iven that the proposed rule is a departure from hundreds of years of precedent” that “would prohibit conduct that 47 states allow.”

The extended public comment period ended on April 19, 2023. The FTC received nearly 27,000 public comments. In particular hospitals and doctors were known to be at odds.

Now that the comment period is over, there is a 180 day-notice period before the rule can go into effect. That means the earliest the rule can go into effect is mid-October.

It is expected that lawsuits will follow over the rulemaking process and the FTC’s authority to make this rule.

If the rule withstands the legal assault this will be a monumental paradigm shift in favor of workers. Employees, if the noncompete ban is enforceable, will no longer be bound by restrictive covenants and will gain more bargaining power and leverage to insist on better terms and conditions of employment.

Non-Compete Agreement

Proposed FTC Rule to Outlaw Non-Compete Agreements

By: Attorney J. Paul Porter

The Federal Trade Commission (FTC) published a proposed rule on January 5, 2023, that would make existing and future non-compete agreements illegal. The FTC says that around 30 million people in the United States are bound by non-compete clauses which restrict their ability to pursue better employment opportunities.

A non-compete agreement is a contract, called a restrictive covenant, that restricts an employee from working for a business or starting a business that does the same kind of work as the worker’s previous employer. These agreements often apply regardless of whether one leaves an employer voluntarily or is terminated.

The FTC says these agreements unfairly limit workers’ ability to earn a living and amount to an “unfair method of competition.” This rule, if it becomes an official regulation, will make existing non-compete agreements unenforceable and employers will have to notify their employees that their non-compete agreements are no longer valid within 180 days of the rules formal publication. It will also make it illegal to enter into new non-competes with employees.

The rule will not bar non-compete agreements for persons who are selling a business.

Right now, in South Carolina, non-compete agreements are enforceable if the employee got something of value for signing the agreement (called consideration), if they do not violate South Carolina public policy, and if they are reasonable as to their geographic reach, duration in time, and scope of work.

CBPH is experienced in assisting employees and former employees in reviewing restrictive covenants and in protecting them from claims they violated non-compete agreements. We are paying close attention to the rule-making process and will update here as significant developments occur.

Business Law, Employment Law, FTC, Non-compete, Noncompete, Restrictive Covenant

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