Could Federal Rule Ban Noncompete Agreements?

On Behalf of | Aug 4, 2021 | Business Law

Numerous tools protect proprietary information, from contractual agreements to sophisticated security programs.

However, not all tools are suitable for every business. And in some cases, the law could restrict the use of specific solutions. Such could be the case if the Federal Trade Commission approves a Biden administration request to limit or ban the use of non-compete agreements.

Aims to promote competition

Reports note that the Biden administration has put non-compete agreements in their crosshairs. They claim that the contracts are overused and unfairly restrict competition.

Nearly 60 million workers in the private sector may be a party to a non-compete agreement. These workers come from all industries, from construction to food service. Critics of these agreements argue that they prevent workers from switching jobs or having meaningful bargaining power. And they place unrealistic restrictions on too many individuals.

On the other hand, businesses use non-compete agreements to prevent workers from taking proprietary information to competitors or starting their own competing business in a specific area or for a particular period of time. 

However, in recent years, the use of non-compete agreements has skyrocketed, even in states that do not enforce them. The executive order requests that the FTC announce a ban or limit on them at the federal level.

Businesses expected to challenge orders

Whether the measure moves forward or not remains to be seen. However, it is likely that if the FTC does announce a ban or limit on non-compete agreements, businesses in Minnesota and across the U.S. may very well challenge the order.

Some parties question whether the FTC has the authority to put such a ban in place; others may claim that they are crucial for specific businesses.

What you can do to protect your business

If you use or plan to use non-compete agreements, it is crucial to stay on top of legislative changes that can affect their enforceability.

It can also be wise to examine alternatives to these controversial tools. Confidentiality agreements can be one option; nondisclosure and nonsolicitation agreements can also be worth considering. 

Determining which measures can best protect your business can require legal guidance and thorough consideration of all possible remedies.