Update on FTC’s Recent Rule on Non-Compete Agreements in Employee Contracts

The Federal Trade Commission (FTC) recently issued its Final Rule on its “non-compete ban,” and litigation has been filed by the U.S. Chamber of Commerce to stop what some view as overreach, according to employment law experts

The FTC rule bans new non-compete agreements in all employment contexts. The rule is likely to have a major impact on employers in many industries in their reliance on using non-competes to protect company secrets and intellectual property, as well as investment in worker training.

Not only does the FTC rulemaking ban nearly all new non-compete agreements, it also requires employers to inform current and past employees that existing noncompete agreements will not be enforced, except for a narrow exemption for employees who meet the definition of a “senior executive.” However, no new non-competes can be entered into with any workers, including “senior executives,” after the effective date of the Final Rule. As related to confidential business information – the current rule states that in addition to trade secret statutory relief, non-disclosure agreements (NDAs) and Non-Solicits are still valid under the new FTC rule, provided they don’t functionally operate as a non-compete to sideline a worker from taking another job. Fact-specific disputes in the Non-Solicit, NDA and trade secret world likely will be tested if the FTC rule goes into effect.

The FTC acknowledged that such disputes, in the absence of non-competes, will result in increased costs for parties. The Commission explained: “While the Commission recognizes that trade secrets litigation and NDA and non-solicitation enforcement may be more costly than non-compete enforcement in some instances, the Commission is not persuaded that higher costs associated with alternative tools make those tools inadequate.”

ReMA will continue to monitor the FTC ruling and litigation to keep members informed of its status and effects on the recycled materials industry.