The feds are coming for your company's noncompete agreements.

AuthorMeyer, Eric B.

The Federal Trade Commission proposed a new rule on Jan. 6 prohibiting employers from imposing non-competes on their workers. Below are some of the biggest questions regarding the huge announcement.

Q. What is the FTC doing?

A. The FTC's proposed rule would generally prohibit employers from using noncompete clauses. Specifically, it would make it illegal for an employer to enter into or attempt to enter into a noncompete with a worker.

Q. What is a "worker"?

A. Worker means a natural person who works, whether paid or unpaid, for an employer. The term includes, without limitation, an employee, individual classified as an independent contractor, extern, intern, volunteer, apprentice or sole proprietor who provides a service to a client or customer.

The term "worker" does not include a franchisee in the context of a franchisee-franchisor relationship; however, it includes a natural person who works for the franchisee or franchisor. Noncompete clauses between franchisors and franchisees would remain subject to federal antitrust law as well as all other applicable law.

Q. When is the compliance date?

A. 180 days after publication of the final rule.

Q. But existing noncompetes are safe, right?

A. WRONG! An employer that entered into a noncompete clause with a worker before the compliance date must rescind the clause no later than the compliance date.

Q. How do we rescind existing noncompetes?

A. The FTC has prepared model language for employers to communicate the rescission to the worker. An employer may also use different language, provided that the notice communicates to the worker that the worker's noncompete clause is no longer in effect and may not be enforced against the worker.

Q. Does the proposed rule apply to other employment restrictions, like non-disclosure agreements?

A. Generally, no. Other types of employment restrictions could be subject to the rule if they are so broad in scope that they function as noncompetes. The FTC provides these examples of potentially de facto noncompete clauses:

* A non-disclosure agreement between an employer and a worker that is written so broadly that it effectively precludes the worker from working in the same field after the conclusion of the worker's employment with the employer.

* A contractual term between an employer and a worker that requires the worker to pay the employer or a third-party entity for training costs if the worker's employment terminates within a specified time period, where the...

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