The FTC’s Noncompete Proposal: The Good and the Bad

The Federal Trade Commission has issued a proposed regulation that generally would prohibit the use of noncompete agreements between employers and employees in all 50 states. Although the proposal’s reasoning may be sound, federal legislation may be a better way to achieve the same goal, particularly if the proposed regulation fails to withstand judicial scrutiny.

The Pros and Cons of Noncompete Agreements

Noncompete agreements are helpful and even necessary in some situations and not so helpful or beneficial in others. In some noncompete scenarios, the legal system heavily favors the employer. As a result, employers may use noncompete agreements in a vindictive manner against employees who rarely have the means to fight back against their former employers, even where no legitimate protectable business interests are at issue.

On the other hand, some positions require companies to invest a great deal in new hires, which is also beneficial for employees looking to improve their careers. Some jobs may require very high compensation levels, involve access to sensitive company information, or operate critical business operations. A noncompete agreement may be appropriate for the employer and employee in these situations. An inability to enter into noncompete agreements altogether could make companies much more reluctant to invest time and money in new hires, even if it is in their best interests to do so, due to the risks involved.

Federal Legislation in Lieu of Federal Regulation

Using the federal legislative process could allow employers, employees, and bipartisan legislators to come together to craft legislation that benefits everyone and addresses some issues that a blanket prohibition raises. For example, legislation could involve exemptions or qualifiers that open the potential for limited noncompete agreements. Some of these possibilities include the following:

  • Salary or wage minimums below which noncompete agreements are impermissible;
  • Mandatory notice of noncompete agreement requirements as early as possible in the hiring process;
  • Strict time limitations on permissible noncompete agreements;
  • An initial mediation requirement to resolve noncompete disputes;
  • Mandatory notice by departing employees if they intend to work for competitors of their former employers; and
  • Streamlining the litigation process.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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