Page 8 - BusinessWest Macrh 6, 2023

A Changing Landscape?
Rule Would Ban All Non-compete Agreements, and Possibly More
BY JOHN GANNON, ESQ.
“Not surprisingly, the FTC’s proposed rule does not sit well with businesses.”
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.
Background
As many readers are likely aware, Massachusetts state law already restricts the use of non-compete agreements in the workplace. The Massachusetts Noncompetition Agree- ment Act (MNAA), which was passed back in 2018, prohib- its 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 employ- ee some amount of money during the non-compete period).
The MNAA does not prohibit agreements restricting employees from soliciting business with customers or cli- ents, 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-com- petes, which could include anti-solicitation and non-disclo- sure agreements, depending on how they are written.
According to the FTC, “when employers use non-com- pete 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 pro- posed rule could increase workers’ earnings across indus- tries 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-com- pete 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 competi- tor. The rule would encompass post-employment restric- tions that ostensibly prohibit the employee from seeking
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8 MARCH 6, 2023
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