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A Changing Landscape?


By John Gannon, Esq.


John Gannon

John Gannon

Last month, President Biden gave his State of the Union address, during which he hyped the legislative accomplishments made during his time in the Oval Office. One of the topics that made the list: non-compete agreements.

Specifically, the president discussed the Federal Trade Commission’s (FTC) proposed rule to ban all non-compete agreements in the workplace. The rule could affect the employment terms of more than 30 million American workers.



As many readers are likely aware, Massachusetts state law already restricts the use of non-compete agreements in the workplace. The Massachusetts Noncompetition Agreement Act (MNAA), which was passed back in 2018, prohibits non-compete agreements with non-exempt employees. In addition, non-compete agreements are enforceable only if an employee is terminated for cause. Under the MNAA, non-competes generally must be limited to 12 months, and must be supported by garden leave (i.e., paying the employee some amount of money during the non-compete period).

The MNAA does not prohibit agreements restricting employees from soliciting business with customers or clients, nor does it impact non-disclosure agreements meant to protect dissemination of trade secrets. And non-compete agreements entered into after the effective date of the MNAA — Oct. 1, 2018 — are not affected.

On Jan. 5 of this year, the FTC proposed its own rule that would ban all non-compete agreements, with limited exceptions. The proposed rule also bans ‘de facto’ non-competes, which could include anti-solicitation and non-disclosure agreements, depending on how they are written.

According to the FTC, “when employers use non-compete clauses to restrict workers from moving freely, they have the power to suppress wages and avoid having to compete to attract workers. Based on existing evidence, non-compete clauses also reduce the wages of workers who aren’t subject to non-competes by preventing jobs from opening in their industry.” The FTC estimates that “the proposed rule could increase workers’ earnings across industries and job levels by $250 billion to $296 billion per year.”


The Proposed Rule

The FTC’s proposed rule would ban all non-compete agreements between employers and employees, as well as independent contractors. The rule defines a non-compete as “a contractual term between an employer and a worker that prevents the worker from seeking or accepting employment.”

This is not limited to traditional non-compete provisions that limit an employee from seeking work with a competitor. The rule would encompass post-employment restrictions that ostensibly prohibit the employee from seeking future employment. Certainly, an argument could be made that overly broad non-solicitation or non-disclosure agreements have the effect of prohibiting a worker from going to work elsewhere.

Unlike the MNAA, the FTC’s proposed rule would rescind all employment non-compete agreements currently in place. It would also require employers to inform employees currently subject to a non-compete agreement that the agreement is no longer valid.


Strong Resistance

Not surprisingly, the FTC’s proposed rule does not sit well with businesses.

Calling the rule “blantantly unlawful,” the U.S. Chamber of Commerce noted that, “since the agency’s creation over 100 years ago, Congress has never delegated the FTC anything close to the authority it would need to promulgate such a competition rule.

“Attempting to ban non-compete clauses in all employment circumstances,” the chamber went on, “overturns well-established state laws which have long governed their use and ignores the fact that, when appropriately used, non-compete agreements are an important tool in fostering innovation and preserving competition.”

The FTC has invited public notice and comments on the proposed rule through March 20. Businesses and others can submit comments at www.regulations.gov/document/FTC-2023-0007-0001. After the close of this comment period, the FTC will publish a final rule, incorporating the input it receives.

This will just be the beginning. After the rule is issued, employers and trade associations are certain to challenge the rule in court. Ultimately, the legality of this rule may be decided by the U.S. Supreme Court, which is precisely what happened with the recent rule proposed by OSHA mandating a COVID ‘vaccine-or-test’ policy for larger employers. This rule was struck down by the Supreme Court earlier this year.


Next Steps for Employers

Many businesses in Massachusetts went through a non-compete process and procedure review back in 2018, due to the MNAA. However, employers need to understand that the proposed FTC rule goes beyond traditional covenants banning employees from working for competitors post-employment. It would be wise for employers to review non-solicitation and non-disclosure agreements currently in place to be sure they will be enforceable should the FTC’s proposed rule become the law of the land.

Businesses should also enhance any agreements meant to protect trade secrets and/or client relationships with suitable policies and procedures. This involves making sure confidential information stays confidential by limiting data access to ‘need-to-know’ groups. It also involves implementing polices geared toward ensuring that sensitive company information stays on site and cannot be accessed on an employee’s personal device.

Finally, employers should carefully follow the progress of the FTC’s proposed rule and work with legal counsel in drafting or enforcing non-compete and non-solicitation agreements going forward.


John Gannon is a partner with the Springfield-based law firm Skoler, Abbott & Presser, P.C., specializing in employment law and regularly counseling employers on compliance with state and federal laws; (413) 737-4753; [email protected]


Non-competition Agreements

By Timothy M. Netkovick, Esq.

Everyone is aware of the honeymoon phase of the employment relationship — that time period when the employee begins work and both parties are filled with high expectations for the relationship.

Possibly, prior to beginning the relationship, an employer has the employee sign a non-competition agreement as a sort of prenuptial agreement, hoping to never have to use it. However, fast-forward a few years, the employment relationship goes sour, and the employee leaves the company. Not only does the employee leave the company, but they also begin soliciting clients, or maybe even fellow employees, to join them at their new place of employment.

As employers are aware, Massachusetts enacted the Noncompetition Agreement Act in 2018. Prior to the act, there was little restriction on the contents of a non-competition agreement other than what terms would be enforced by a court in the event of a dispute. That changed with the provisions of the act. Now, in the scenario above, if the employer sought to enforce the non-competition agreement, it would need to pay the former employee not to work during the competition period.

This is because the act mandates that, to be enforceable, a non-competition agreement must contain a ‘garden-leave clause,’ defined as 50% of the employee’s highest annualized salary within the two years preceding termination.

“While the Noncompetition Agreement Act requires employers to pay former employees not to work, there may be other options available to employers.”

Employers therefore must answer the question: what do I really want with a non-competition agreement? Is it to stop the former employee from working? Or is the goal to maintain the status of my business? If the goal is to maintain the status of the business, employers may be able to utilize non-solicitation and non-disclosure agreements, which can protect the former employer’s interests while also allowing the former employee to work.

Both such agreements are excluded from the definition of ‘non-competition agreement’ by the act, meaning they do not need to include garden-leave clauses.

A non-solicitation agreement does not prohibit a former employee from working for a competitor when the employment relationship ends. Instead, it serves to prohibit the former employee from soliciting clients and other employees of the former employer to join them at their new place of employment. A non-solicitation agreement can therefore be an effective tool in preserving the current status of the business by prohibiting a former employee from taking clients and other employees with them to their new place of employment.

A non-disclosure agreement also does not prohibit a former employee from working for a competitor when the employment relationship ends. Nor does it prohibit the former employee from soliciting clients and other employees from joining them at their new place of employment. Instead, it serves to prohibit the former employee from disclosing any confidential information from the former employer. The confidential information protected could be a trade secret or other highly sensitive material.

In short, while the Noncompetition Agreement Act requires employers to pay former employees not to work, there may be other options available to employers. It is therefore wise to consult with employment counsel to review your potential options to protect your business interests after the employment relationship has ended. u


Timothy M. Netkovick, Esq. is a litigation attorney who specializes in labor and employment-law matters at the Royal Law Firm LLP, a woman-owned, women-managed corporate law firm certified as a women’s business enterprise with the Massachusetts Supplier Diversity Office, the National Assoc. of Minority and Women Owned Law Firms, and the Women’s Business Enterprise National Council; (413) 586-2288; [email protected]