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Has the New FTC Non-Compete Ban Been Banned? Employers Consider Options After Legal Challenges to FTC Rule

As was widely published last week, the Federal Trade Commission (“FTC”) issued its long-awaited Final Rule which prohibits employers from entering into non-compete agreements with employees with limited exceptions. The next day, the U.S. Chamber of Commerce, along with several smaller Texas-based organizations, filed a lawsuit in the 5th Circuit to “block the ban,” arguing that the FTC exceeded its authority in issuing the Rule.

While the fate of the FTC Rule now hangs in the balance, employers in California are largely unaffected because they are already prohibited from entering into non-competes with employees under California Business and Professions Code sections 16600, 16600.1, and 16600.5 unless specific statutory exceptions apply (e.g. the sale of goodwill of a business). Companies with employees in California will be bound by these state laws regardless of whether the FTC rule goes into effect.

All employers who feel that they are now in limbo should keep in mind that even if the FTC Final Rule eventually goes into effect (and there are certainly scholars and lawyers opining that it will not), nothing limits employers’ right to prohibit employees from using company trade secrets and proprietary information to unfairly compete with the employer or to solicit the employer’s clients, customers, employees, or vendors, both during and after employment.

Companies should have their policies or contracts reviewed carefully by legal counsel to make sure that they are getting as much protection as possible while avoiding overbroad language that might subject them to liability under applicable laws.

Categories: Compliance