FTC Issues New Rule on Non-compete Agreements

The FTC recently announced a new rule banning the use of non-compete agreements.

These agreements with employers restrict employees from taking another position or starting a business that competes with their employer. They are often negotiated at the beginning of the employee-employer relationship and are often found in employment agreements. Prior to the new rule, the legality of these agreements varied by state but were already banned in some places. A related type of agreement is a “no poach” agreement, where competitors agree not to hire each others employers. The FTC banned those agreements several years ago. Non-solicitation agreements, where you agree not to solicit customers, are another type of agreement that have language that touch upon a “no poach” or non-compete rule. Please make sure your legal department is up to date with the current rules and reviews all of your agreements.

The FTC estimates the rule will lead to the formation of 8500 new businesses. The new rule impacts existing non-compete agreements. In most cases, they will be rendered unenforceable. If you have a non-compete agreement, or a similar agreement, you should check with an attorney to see if the new rule impacts your situation.