There has been much media buzz recently about the Federal Trade Commission’s proposed “Non-Compete Clause Rule,” which aims to ban almost all non-compete agreements within commercial and employment contracts. Even if you missed the FTC’s notice of proposed rulemaking (issued Jan. 5, 2023), you may have heard President Biden take aim at non-compete agreements in this year’s State of the Union address:
“30 million workers had to sign non-compete agreements when they took a job…Not anymore. We’re banning those agreements so companies have to compete for workers and pay them what they’re worth.”
What President Biden didn’t mention is that the FTC’s rule also seeks to ban any restrictive covenant that could be interpreted as a “de facto” non-compete, which could include many nondisclosure and non-solicitation agreements. Many legal scholars and practicing attorneys have opined that the FTC lacks the constitutional authority to take such dramatic action with regard to restrictive covenant agreements. Whether they are right or wrong, the FTC’s proposed rule is just one of the latest developments in a nationwide push for non-compete reform occurring at both the federal and state level.
Just this month, three bills were introduced in Congress relating to non-compete agreements. On February 1, Senators Todd Young (R-IN) and Chris Murphy (D-CT) introduced a bill seeking to ban all employee non-competes, notably permitting the exception for non-competes in the context of the sale of a business. That same day, Representative Scott Peters (D-CA) introduced a substantially similar bill in the House of Representatives.
Two days later, Senators Marco Rubio (R-FL) and Maggie Hansen (D-NH) re-introduced the Freedom to Compete Act, which similarly seeks to ban non-competes for employees classified as non-exempt under the Fair Labor Standards Act.
Notably, both of these recently introduced Senate bills come from co-sponsors on both sides of the aisle, a rare instance of bipartisan support in an increasingly polarized climate. Additionally, both Senate bills are re-introductions of bills introduced in past legislative sessions, indicating that congressional attention is starting to focus on the non-compete question as a major issue.
19 state legislatures currently have pending non-compete bills or have recently passed non-compete reform legislation. That means 40% of the country is currently considering changes to their non-compete laws at the state level. The proposed bills range from complete bans on non-compete agreements in states like Connecticut, to more incremental changes like bans on non-competes for low-wage workers in states like Missouri. This deluge of proposed legislation follows restrictions on non-compete agreements enacted by 29 states, plus D.C., over the past 10 years.
The national legal landscape regarding non-compete agreements is changing rapidly, and there is no indication the changes will be ending any time soon. In this climate, it pays to engage skilled legal professionals experienced in dealing with non-compete agreements. BHMK attorneys are licensed in Ohio, Kentucky, Indiana, and Florida, with decades of combined experience in those states, a proven record of successfully dealing with restrictive covenant issues, and their fingers on the pulse of developing law. Contact BHMK today for thoughtful, focused assistance with all of your legal matters.