Will non-competes be a thing of the past?January 6, 2023

The U.S. Federal Trade Commission (FTC) is starting 2023 off with a bang by publishing a Notice of Proposed Rule-making (available here) that propose a Non-Compete Clause Rule. The topic is causing a buzz in the employment law sector. It should also be closely monitored through the intellectual property law sector.  Many – including myself – have been tracking this potential rule-making since President Biden issued an Executive Order in July 2021 addressing competition in the American economy. In short, the administration has taken a clear stance against non-competes as negatively impacting the economy by concentrating market powers and constraining economic growth. The FTC is positioned to enforce anti-competitive behaviors through federal antitrust statutes.

I spoke on the topic in January 2022 for SIPA (Seed Innovation & Protection Alliance) members while addressing how to use contractual provisions to protect plant breeding programs. At that time it was clear that the FTC would initiate rule-making, although it was yet unclear to what extent the FTC would seek to either limit or ban the use of covenants between employers and employees to restrict post-employment activities. The time has come and the FTC is making its move! So what does this mean?

The rule aims to prohibit future non-compete agreements and also INVALIDATE existing non-compete agreements. There is language that states employers would be required to take formal steps to rescind non-compete agreements and proactively notify impacted parties (with limited exceptions proposed). This of course would place an immediate HR and legal burden on employers. It would also cause quite an upset in various industries where proprietary information is a bedrock of a company/institution’s being. However, it would provide clarity to employees subject to these types of agreements.

It is important to keep in mind that regardless of the outcome of the proposed rule-making, there will remain other important employment agreements and covenants that should remain in place. For example, nondisclosure agreements can control and restrict disclosure of confidential, proprietary and trade secret information. In addition employment and other agreements can also include non-solicitation, non-interference or circumvention and/or anti-poaching agreements. However, legal eyes will be focused on how the rule-making progresses to ensure whether these other mechanisms remain as viable tools.

There is a 60-day public comment period in effect before a final rule will be published. Stay tuned for further information on the topic.

Jill N. Link, Pharm.D. is a Patent Attorney and Partner at McKee, Voorhees & Sease, PLC in the Chemical and Biotechnology Practice Group. She is also Chair of the Licensing Practice Group. For additional information please visit www.ipmvs.com or contact Jill directly via email at jill.link@ipmvs.com.