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Will there be a federal showdown over noncompete agreements?

On Behalf of | Jan 24, 2023 | Business Litigation

The Federal Trade Commission FTC helps both enforce existing regulations and propose ways to better oversee domestic business operations. Sometimes, the suggestions that they make raise eyebrows and worry those involved in certain industries.

That is certainly the case recently when the FTC announced that it would back a federal ban on all noncompete agreements. The reasoning behind the announcements was that the increased use of noncompete agreements in recent decades was causing issues for some of the most skilled workers in the country, as well as challenges for people in totally unskilled positions forced to sign such agreements to obtain new jobs.

Despite the FTC’s indication that they would like to follow California and a handful of other jurisdictions in banning such agreements, they may face real opposition.

The United States Chamber of Commerce has threatened to sue

Obviously, non-compete agreements largely benefit businesses that already exist. It makes sense, then, that the United States Chamber of Commerce, which represents domestic businesses, would want to fight back against a policy that could affect the profit margins of some of its constituent organizations.

Many companies rely on restrictive covenants like noncompete agreements to protect their trade secrets and minimize the risk of unfair competition. Should the FTC move to enact some kind of federal ban on noncompetes, the Chamber of Commerce will most likely respond by initiating a federal lawsuit.

That lawsuit will trigger a careful court review of the situation and potentially prevent the FTC from enforcing the new ban.

Businesses should prepare for changing employment rules

Given that the FTC is only the most recent and a long line of authority figures to point out issues with noncompete agreements, businesses can presume that some degree of reform will likely occur in the next few years.

The more important it is to protect your company’s intellectual property and prevent workers from misusing your trade secrets, the more important reworking your employment contracts to remove noncompete agreements while still protecting your company’s interest may become.

Tracking major changes in domestic employment laws, such as the rules for noncompete agreements, can help you better protect your organization when hiring new workers or renegotiating contracts with existing ones.

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