In a word, politics.
In three words, miles to go.
Here is what has happened. The FTC is a federal agency with the authority to make rules to implement various statutes passed by Congress over the years to promote competition, or to control anti-competitive business practices. Before it can implement such a rule, it must “publish” its proposed rule and give time for the public to provide comments and suggestions. In theory, a final rule will reflect the prevailing comments and suggestions.
That is where we are. The FTC has proposed a rule that would ban non-compete clauses with employees and contractors, regardless of industry, location, or employment position. And, it has asked for comment. Comments are invited on topics such as: what about senior executives? what about salespeople? what about employees conducting research and development? what about employees with day-to-day customer relationships?
Important point: the FTC rule, even as broadly drafted today, would not affect targeted customer-based non-solicitation agreements or confidentiality agreements.
Clearly, this agency action is an effort to support the individual interest over corporate interests. It does so, however, in the face of years, even centuries, of state and federal courts upholding contracts that include non-compete agreements. A blanket ban would eliminate contracts that 47 states, through their legislatures and their courts, currently declare lawful.
Therefore, whatever rule ultimately emerges from the FTC, lawsuits will follow asking courts to decide that the agency has overstepped its authority. While we do not predict the outcome of ANYTHING coming out of Washington, D.C. these days–not from Congress, the Administration, or the Supreme Court–it is hard to see how a rule from a federal agency banning non-compete agreements across the board would hold up in the federal court system.
The current discussion of a possible new FTC rule is a good reminder of at least two points we always tell our clients:
(1) No, I’m sorry, but there is no such thing as a form non-compete agreement you can download from the internet and rely upon when you really need it; and
(2) Yes, carefully written non-compete agreements are generally lawful, but they might not hold up in every situation, depending on the facts.
For those two reasons and more, regardless of any new FTC rule, a careful business should work with legal counsel to design contracts that fit–for the specific industry, the specific employee’s job duties, the specific territory, and the specific customer base. With proper planning and legal advice, at least some degree of legitimate protections will always be recognized and enforced by courts.