The Federal Trade Commission (FTC) has proposed a new federal regulation to ban noncompete agreements and rescind their applicability in existing employment contracts. The FTC will accept public comments on the proposed rule for the next sixty days.
The proposed rule would apply to any employment agreement that prevents an employee from seeking employment or operating a business after leaving the employer. The proposed rule would not ban non-disclosure or customer non-solicitation agreements, but the regulation could apply to ban those provisions if they were broad enough to prohibit an employee from working in the same field. Employers would be further prohibited from telling employees that a non-compete agreement exists or can be enforced.
The ban is broadly defined to include not only employees but also independent contractors, sole proprietors, volunteers, interns, and any other individuals who work, whether paid or unpaid, for an employer.
Under the rule, employers would be required to rescind non-compete provisions previously entered into and inform employees in writing by letter, email, or text message that the agreement is no longer in effect and will not be enforced. Contract provisions that require terminated employees to reimburse employers for training costs are also curtailed.
The proposed rule provides an exception for non-compete provisions entered into by a substantial owner in the sale of the owner’s interest in a company.
The proposed rule would preempt all state and local rules inconsistent with its provisions, but not state laws or regulations that provide greater protections. As a practical matter, the proposed rule would override existing non-compete requirements and practices in the vast majority of states, including Minnesota.
In concert with its proposal, the FTC has announced actions against three companies and two executives for imposing non-compete restrictions on employees. One case involves Prudential Security, a Michigan company that restricted minimum wage security guards from working for a competing security guard business within a 100-mile radius for a period of two years. If the guards violated the restriction, they would be subjected to a $100,000 penalty. Under the Prudential order, the companies are banned from enforcing or threatening to enforce the noncompete restrictions.
The FTC also acted against the two largest manufacturers of glass food and beverage containers. O-I Glass, Inc., an Ohio-based company, banned workers from being employed by any competitor in the United States for a period of one year. Ardagh Group S.A. imposed noncompete restrictions on 700 employees in the United States from working for a competitor anywhere in the United States, Canada, or Mexico for a period of two years. The two companies have been ordered to void and nullify their noncompete provisions and to so advise the impacted employees.
The FTC actions follow up on actions in several states that currently prohibit or restrict noncompete provisions: California, Illinois, Maryland, New Hampshire, North Dakota, Oklahoma, Oregon, Virginia and Washington have already banned or restricted the use of noncompete agreements.
The FTC seeks comments on the proposed rule over the next 60 days, after which the FTC will likely adopt a final rule, with compliance mandated 180 days thereafter. Thus, the earliest the proposed rule could go in effect is 240 days after the FTC published the rule in the Federal Register. The rule could be further delayed depending on possible legal challenges, which are likely to be filed.
Employers can prepare for possible FTC action by knowing in advance which employees have noncompete provisions and whether these provisions comply with current state law and the proposed federal law. Employers may wish to consider revamping their HR strategies by focusing on retention and compensation. Long- term incentive plans can be more effective than noncompete agreements in terms of holding on to prized employees.
The law firm of Swanson Hatch, P.A. represents businesses and professionals in regulatory, compliance, litigation, and enforcement matters, among other things. The firm regularly represents and advises businesses and individuals in matters involving non-compete and non-solicitation provisions. Prior to her twelve years as Minnesota Attorney General, Lori Swanson previously served as Solicitor General and Deputy Attorney General of the State of Minnesota and chaired the Federal Reserve Board’s Consumer Advisory Council in Washington, D.C. Before he became Attorney General, Mike Hatch previously served as Commissioner of the Minnesota Department of Commerce for eight years, where he was the primary regulator of the insurance, real estate, mortgage, and financial industries in Minnesota. Lori Swanson can be reached at lswanson@swansonhatch.com, or at 612-315-3037. Mike Hatch can be reached at mhatch@swansonhatch.com, or at 612-315-3037. The firm’s website is www.swansonhatch.com .
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www.swansonhatch.com
431 S Seventh Street, Suite 2545
Minneapolis, MN 55415 612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
The Federal Trade Commission (FTC) has proposed a new federal regulation to ban noncompete agreements and rescind their applicability in existing employment contracts. The FTC will accept public comments on the proposed rule for the next sixty days.
The proposed rule would apply to any employment agreement that prevents an employee from seeking employment or operating a business after leaving the employer. The proposed rule would not ban non-disclosure or customer non-solicitation agreements, but the regulation could apply to ban those provisions if they were broad enough to prohibit an employee from working in the same field. Employers would be further prohibited from telling employees that a non-compete agreement exists or can be enforced.
The ban is broadly defined to include not only employees but also independent contractors, sole proprietors, volunteers, interns, and any other individuals who work, whether paid or unpaid, for an employer.
Under the rule, employers would be required to rescind non-compete provisions previously entered into and inform employees in writing by letter, email, or text message that the agreement is no longer in effect and will not be enforced. Contract provisions that require terminated employees to reimburse employers for training costs are also curtailed.
The proposed rule provides an exception for non-compete provisions entered into by a substantial owner in the sale of the owner’s interest in a company.
The proposed rule would preempt all state and local rules inconsistent with its provisions, but not state laws or regulations that provide greater protections. As a practical matter, the proposed rule would override existing non-compete requirements and practices in the vast majority of states, including Minnesota.
In concert with its proposal, the FTC has announced actions against three companies and two executives for imposing non-compete restrictions on employees. One case involves Prudential Security, a Michigan company that restricted minimum wage security guards from working for a competing security guard business within a 100-mile radius for a period of two years. If the guards violated the restriction, they would be subjected to a $100,000 penalty. Under the Prudential order, the companies are banned from enforcing or threatening to enforce the noncompete restrictions.
The FTC also acted against the two largest manufacturers of glass food and beverage containers. O-I Glass, Inc., an Ohio-based company, banned workers from being employed by any competitor in the United States for a period of one year. Ardagh Group S.A. imposed noncompete restrictions on 700 employees in the United States from working for a competitor anywhere in the United States, Canada, or Mexico for a period of two years. The two companies have been ordered to void and nullify their noncompete provisions and to so advise the impacted employees.
The FTC actions follow up on actions in several states that currently prohibit or restrict noncompete provisions: California, Illinois, Maryland, New Hampshire, North Dakota, Oklahoma, Oregon, Virginia and Washington have already banned or restricted the use of noncompete agreements.
The FTC seeks comments on the proposed rule over the next 60 days, after which the FTC will likely adopt a final rule, with compliance mandated 180 days thereafter. Thus, the earliest the proposed rule could go in effect is 240 days after the FTC published the rule in the Federal Register. The rule could be further delayed depending on possible legal challenges, which are likely to be filed.
Employers can prepare for possible FTC action by knowing in advance which employees have noncompete provisions and whether these provisions comply with current state law and the proposed federal law. Employers may wish to consider revamping their HR strategies by focusing on retention and compensation. Long- term incentive plans can be more effective than noncompete agreements in terms of holding on to prized employees.
www.swansonhatch.com
431 S Seventh Street, Suite 2545
Minneapolis, MN 55415
612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
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Swanson | Hatch, P.A.
431 S. 7th Street, Suite #2545
Minneapolis, MN 55415
612-315-3037
www.swansonhatch.com