Noncompete Clauses on the Chopping Block at the FTC


Employers have used noncompete clauses in employment agreements for decades as a way to protect company innovations.  Such clauses may now be banned entirely by the FTC if their notice of proposed rulemaking announced on Jan. 5, 2023 becomes final.  

The FTC's rule proposal broadly defines who is “a worker” and what qualifies as “a noncompete clause” between an employer and worker.  With limited exceptions, it would prohibit employers from entering into, attempting to enter into, or maintaining noncompete restrictions on their workers.  While employers in jurisdictions such as California already live within this proposed paradigm, the FTC’s rule would impact employers nationally.

Should noncompete provisions become vulnerable, employers will need to account for their employees’ ability to change jobs more freely in other ways, particularly to and from direct competitors.  As always, employers need to ensure that confidentiality provisions, invention disclosures, and trade secret measures are in place to prevent export of their IP.  Likewise, employers need to insulate themselves from employees that may import knowledge and IP from a previous employer, whether intentionally or otherwise, to ensure that such information does not infiltrate their own IP or result in an IP action.

If adopted, greater scrutiny should be given to noncompete clauses in existing or potential transactional and employment agreements.  Employers should also consider the effect of these rules on their current confidentiality and trade secret policies, and invention recordation and disclosure requirements.