The Federal Trade Commission (FTC) has recently targeted non-compete clauses, referring to these provisions as an “exploitative practice that undermines a 109-year-old law prohibiting unfair methods of competition.” The document set forth on January 5, 2023 proposes that the Non-Compete Clause Rule “provide that it is an unfair method of competition for an employer to enter into or attempt to enter into a non-compete clause with a worker; to maintain with a worker a non-compete clause; or, under certain circumstances, to represent to a worker that the worker is subject to a non-compete clause.”
A non-compete clause essentially prevents employees from leaving for a competitor or starting a competing business for months or years after their employment within a certain geographic area. Many states maintain that these clauses are necessary for businesses to protect their investment in their employees, customer relationships, and confidential information from unfair competition.
However, some states, such as California, have placed an outright ban on the clauses. One exception in California is that a non-compete can be placed when it is the sale of business. Oklahoma and North Dakota have also placed outright bans on non-competes.
By the same token, several states have placed salary thresholds and other limits on when a non-compete is permissible. For instance, in Illinois, the employee salary must be $75,000 or above and there must be a 14- day notice period where the prospective employee can take the agreement to an attorney for review. Washington, Oregon, Rhode Island, Massachusetts, and New Hampshire are among the other states who have set limits. It seems as if Connecticut may soon follow the path of its New England neighbors as it currently has legislation in the works that will significantly limit the permissibility of non-competes if passed.
Will more states follow in line? Will the FTC proposal be enacted? Only time will tell. Of course, if the FTC prevails, non-compete clauses will be a thing of the past.
For now, as it stands here in Georgia, a non-compete clause, if drafted properly, is enforceable. If you have questions about non-compete clauses or any other restrictive covenants in your current or prospective employment agreement, we are available to review it and help you to better understand the terms and enforceability. If you are a business owner who wishes to include any restrictive covenants such as a non-compete clause in order to help protect your business, we are here to help you tailor it to meet the needs of your industry. Contact us today to start the conversation.
Please see the previous Sparks Law blog posts to learn more about non-compete clauses.