Federal Trade Commission Proposes New Regulation Regarding Noncompete Agreements

The FTC has proposed a new regulation that would ban the use of noncompete agreements in employment. Read it here. A noncompete agreement is a contractual agreement between an employer and employee where the employee agrees not to work for a competitor or start their own competing business for a set period of time after they leave employment. Noncompete agreements are typically presented when the candidate is hired, and employment is often conditioned on the candidate’s agreement.

Minnesota law currently allows noncompete agreements to be enforced within certain guidelines. Employers must be able to state a provide a legitimate business reason for the noncompete. Courts have also invalidated noncompete agreements that last for too long or apply to too much territory, such as agreements that do not specify a geographical area. Whether an agreement is too restrictive also depends on the industry involved and the nature of the employee’s job.

If the FTC rule is implemented, not only will noncompete agreements be banned going forward, employers will be required to rescind any noncompete agreements they currently have in place. This will have a major effect on how employers plan for employees who change employers frequently, such as sales representatives. Employers will have to think carefully about using other methods to protect their business, such as trade secret protections and non-solicitation agreements. A bipartisan group of U.S. Senators has introduced a bill that mirrors the proposed rule but does would not apply to noncompete agreements that are already in place.

The attorneys at Smith Jadin Johnson, PLLC can help you plan for the new rule and answer any other questions you have about employment agreements.