There’s been a lot of confusion around non-compete agreements and clauses in recent years. Many companies need to restrict at least certain employees from taking the skills and knowledge they’ve acquired to a close competitor immediately after they leave. However, these agreements have been widely and unnecessarily used by fast food restaurants and other employers – and have kept low wage employees from getting work if they leave their job or are terminated.
Under the Biden administration, the Federal Trade Commission (FTC) developed a rule that sought to ban non-competes – even retroactively. However, its efforts were blocked by the courts. Nonetheless, many states, including New York, place restrictions on when they can be used and how broad they can be.
Recent FTC decisions
Under the current administration, the FTC has vacated that previous federal rule. That means to the extent that state law allows, employers are free to include noncompete language in their contracts. Agreements already signed will be upheld, although the FTC has the authority to review them on a case-by-case basis.
The FTC has indicated it will still continue to cooperate with state attorneys general to prohibit non-compete agreements that are “deemed anticompetitive under existing law,” as one organization told its members.
Both federal and state law around non-compete language may seem to be constantly in flux. This can be highly frustrating and confusing to businesses that want to comply with the law but also protect their intellectual property and proprietary information as well as their advantages in the market. That’s just one reason why it’s crucial for businesses to have experienced legal guidance when drafting and enforcing their contracts.