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FTC’s Proposed Ban on Employee Noncompete Agreements

March 10, 2023
Est read time: 3 minutes

Recently, the Federal Trade Commission (FTC) proposed a rule that could potentially eliminate employee noncompete agreements countrywide. This regulation would affect many, as approximately 32 million American workers are subject to a noncompete agreement. The FTC, in proposing this rule, seeks “to curtail the unfair use of noncompete clauses and other clauses or agreements that may unfairly limit worker mobility.”

This proposed rule can have a profound effect on Florida’s health care work environment. Many employees, including administrators, doctors, and nurses, are subject to noncompete clauses as part of their employment. Noncompete clauses, in certain circumstances, provide an employer with certainty regarding an employee’s dedication to his or her employment. Nonetheless, many noncompete clauses are invalidated every year for being overbroad and anti-competitive. The FTC’s proposed rule is a result of increased attention to promoting competition in the US economy. 

Key Features of the Proposed Regulation

The proposed regulation would ban employee noncompete agreements in nearly all instances. The regulation, however, would not affect other types of employee agreements such as non-solicit agreements or non-disclosure agreements, unless they constitute a “de facto” noncompete agreement. Noncompete agreements that are not related to employment, such as business-to-business noncompetes, would not be affected.

The proposed regulation would invalidate employee noncompete agreements in the past and the future. Employers with pre-existing noncompete agreements would be required to nullify those agreements within 6 months of the passing of the proposed rule. Employers would have to inform current and former employees that the agreement was rescinded within 45 days of doing so. 

Further, the regulation asserts that it would preempt any inconsistent state laws. Thus, any state laws that allow provisions of noncompete agreements would also be invalidated under this proposed rule. 

Are there any Exceptions?

The proposed prohibition on employee noncompete agreements would not apply to agreements made in connection with the sale of a business, provided that the party subject to the restrictions is a 25% (or greater) owner in the business being sold. This is because the proposed rule only affects employment related noncompete agreements, and thus would not affect noncompetes entered into in connection with the sale of a business unrelated to employment, the latter of which are generally broader in scope and also necessary for the viability of the business as operated by the new owner. 

Additionally, the proposed rule would only apply to noncompete agreements entered into between an employee and an individual worker. Thus, business-to-business noncompete agreements would not be affected. The FTC has however indicated an interest in reviewing agreements between franchisees and franchisors, and has invited comments on whether or not they should propose regulations aimed at those parties.

Wondering if this Regulation will Affect you? We are here to help.

This proposed rule by the FTC will certainly have broad and lasting effects if enacted. We understand that for many healthcare employers, including facilities, nursing centers, and hospitals, this regulation can be worrisome. We are able to help you strategically plan for the effects of this regulation. Losing key employees to a competitor can be detrimental. Our team of legal experts understands these complex considerations and can assist you.

If you are a current or former employee and are wondering if this proposed rule will affect you, contact our team at Howell, Buchan & Strong. We can review your agreements, determine the legal impacts, and provide advice on how to avoid legal complications.

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