Big Changes Coming in the Area of Non Compete Agreements

Non competition agreements are a very commonly used by employers in a wide range of industries to temporarily limit what former employees can do when they leave. A very typical scenario would be a sales person with a technology company being limited from working for a specific list of competitors for one-two years. Non competition agreements are generally disfavored by courts and state court judges will often limit their enforcement. Furthermore, many states have limited or essentially banned them in recent years. For example, Oregon (ORS 653.295) limits enforcement to employees making less than approximately $100,000 per year in total compensation. California banned noncompetes completely in the employment context.

Recently, the Federal Trade Commission has proposed what, in all practical respects, is a complete ban on non compete agreements. As of the date of this article, the comment period for the rule has passed and we are waiting to see what the final rule will look like. Others with better information than me speculate that the final rule will be published in early 2024. That said, it could happen at any point or nothing might ever happen.

There’s a ton of interest on the topic. A typical proposed rule might receive a few hundred comments. The ban on non competes has generated over 30,000 comments. Many industry groups oppose it while labor advocates generally support it.

If the rule takes effect, employers will be required to notify employees that they are no longer subject to it previously valid non compete agreements. There will also be notice requirements to former employees who were subject to a non compete when they left employment.

Currently, there is nothing for employers to do but wait. That said, assuming the rule takes effect, employers will want to consider other approaches to protecting themselves. For example, non solicitation agreements will not be impacted. Additionally, and perhaps more importantly, nondisclosure agreements are not impacted. Employers should look at approaches to more carefully craft agreements as well as control who has access to a company’s intellectual property. As an example, IP such as customer lists, software code, financial reports, etc. do not necessarily need to be made available to all employees.

Check back here for updates on this issue.