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Fox Business is reporting that the Federal Trade Commission is looking at potentially ending the practice by employers of using restrictive covenants (or, covenants not to compete) for certain personnel. Banning this employer tool/practice would be a rather drastic change. Supposedly driving this big change in permitted business practices is the purported over-use of these restrictions on low-income personnel. I do not know if that’s accurate and, frankly, see little efficacy or need to use covenants not to compete in those instances. Nonetheless, let’s be clear: This proposal is a potentially major change, on several levels. First, non-compete agreements/restrictive covenants, whether stand-alone or within a more comprehensive employment agreement, have been whittled away by the courts and/or certain state laws over many years. These agreements now require far more connectivity to some protectable employer interests; they cannot be asserted just willy-nilly. In my experience, restrictive covenants, in proper instances, continue to have a place and serve a useful function. Think of high-level sales professionals having access to company trade secrets, client lists, and pricing formulas and taking this highly confidential information without restrictions to the highest paying competitor. This type of scenario is completely foreseeable and should continue to be prohibited. There are other business illustrations/scenarios worth protecting with non-competes too.
There’s a procedural issue here too. The FTC contemplating taking administrative action, sans federal legislation, is … interesting. I hate that, frankly. Pass a law or don’t but do not make this type of change via administrative fiat. It’s BS.
Again, few would quibble prohibiting restrictive covenants for lower-paying jobs, but at the executive level? Nonsense. So, keep an eye on this … I promise I will.