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future employment. Certainly, an argument could be made that overly broad non-solicitation or non-disclosure agree- ments 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would also require employers to inform employ- ees currently subject to a non-compete agreement that the agreement is no longer valid.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. Cham- ber 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 employ- ment 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 peri- od, 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 mandat-
ing 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 cov- enants 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 suit- able policies and procedures. This involves making sure confidential information stays confidential by limiting data access to ‘need-to-know’ groups. It also involves implement- ing 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. BW
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]
“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.”
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