On January 5th, 2023, the Federal Trade Commission (FTC) proposed new regulations that could ban non-competition and non-solicitation agreements nationwide. This ban would significantly alter employment relationships in most states.
By banning these restrictive covenants, the FTC would expand many employees’ abilities to pursue new jobs and provide leverage to negotiate better compensation. However, many companies oppose the change, arguing that it would allow “unfair” competition from their current or previous workers.
Proponents of the change argue that current laws are already stacked in favor of corporations. They suggest that the proliferation of these contracts may be artificially suppressing wages in many industries. Because employees cannot freely move between organizations in the same industry, they are forced to remain at their current employers or find work in an unrelated field for months or longer.
The FTC has not yet confirmed whether the proposal will be approved. The proposed rules are open for public comment through March 20th. However, they could grant you stronger rights to pursue fair employment and compensation in your industry if finalized.
How Noncompete Clauses Work
A restrictive covenant in employment contract law is an agreement barring the employee from “competing” with the employer in certain ways during or after their time with the company. The most common forms are non-competition and non-solicitation clauses.
A non-competition clause is intended to prevent workers from taking advantage of employers. These clauses prevent workers from using knowledge or skills learned at the organization to compete with them after they leave. This may include barring them from working for a competitor, opening their own business in the industry, or otherwise performing substantially similar work that could reduce revenue for the employer.
Meanwhile, non-solicitation agreements prevent employees from using their pre-existing relationships with their clients or other employees to benefit their future business endeavors. This includes trying to hire away other employees or bringing clients with them to a new business.
The specific components of these clauses and contracts depend on the state in which a person is employed. They are currently governed by state law instead of federal law, so workers in locations like Illinois, Ohio, and California may have very different rights.
Generally, a noncompete or non-solicitation agreement cannot unfairly limit the employee’s ability to find work. To be enforceable in most states, restrictive covenants must meet several criteria:
- Duration: The clause cannot be indefinite. It must be time-bound and, in most cases, cannot last more than a year or two. Any longer and most courts will not uphold the original contract because it is unfair to the employee.
- Scope: The contract’s scope must be fair. It should specify the types of work the employee cannot do and the techniques, information, or practices they may not share. Being overly broad in scope can lead to the contract being invalidated.
- Reasonableness: Beyond scope and duration, the contract must otherwise be reasonable. Issues like absurdly high damages and unfair limitations on the employee’s rights may be found unreasonable and render the agreement unenforceable.
The Impact of Ending Noncompete Clauses
The federal government is on a role with changes that will benefit workers. Banning noncompete agreements nationwide would significantly expand many workers’ rights. People bound by non-competition clauses must often make difficult career choices, such as staying at abusive employers or being forced out of their industry for a year or more. By banning these agreements in almost all cases, the FTC would reaffirm its dedication to supporting fair trade for all participants, not just employers.
The ban would not affect all states equally, though. Some states, such as California, have banned these restrictive covenants in almost all cases. In fact, it appears the FTC proposal is modeled off of California’s noncompete clause ban. Other states, like Illinois, still permit restrictive covenants in certain circumstances but heavily regulate what may be included.
In these locations, an outright ban will have a smaller impact. Many restrictive covenants are already recognized as unenforceable or void under these states’ laws, so affected workers may be able to seek new employment regardless of whether the FTC approves the proposed ban. Still, this could be revolutionary for workers in locations like Ohio and other states where noncompetes are minimally regulated.
How to Fight Back Against Unfair Non-competition Agreements
You have certain basic rights regarding restrictive employment covenants regardless of where you live. You can fight back if you were forced to sign a non-competition agreement that unfairly restricts your ability to change jobs.
First, you should know that if the contract is found to be void or unenforceable by the court, you should face no consequences for “violating” it. This is important because unscrupulous employers may include unenforceable noncompete clauses in your employment contract to intimidate you. Knowing whether your contract is enforceable in your state can help you fight back if your employer tries to prevent you from using your skills at another company.
Furthermore, you do not have to wait until your employer tries to restrict your employment opportunities to determine whether the contract is enforceable. You can consult an experienced employment law attorney to discuss the agreement and your rights under state law. Your lawyer can help you decide whether you should negotiate a new contract with the organization or file a petition with the court to invalidate the existing one.
You should also reach out to a skilled attorney if you have already been threatened with legal action for violating a noncompete clause. At the Law Offices of Todd M. Friedman, P.C., we represent clients in California, Illinois, Ohio, Pennsylvania, and around the country whose right to fair employment has been violated. We have the resources and experience necessary to help you take on even the largest employers if they try to hold you to unfair contracts. Learn more about how we can help you fight against unreasonable noncompete clauses by scheduling your consultation today.
