At the same time, such clauses can benefit employers, helping them protect client lists or trade secrets when employees leave, says Dawn Lanouette, a labor attorney with Hinman, Howard & Kattell, LLP in Binghamton. “A well-written noncompete is designed to protect an employer,” she says, adding that noncompetes are the only way many employers feel […]
At the same time, such clauses can benefit employers, helping them protect client lists or trade secrets when employees leave, says Dawn Lanouette, a labor attorney with Hinman, Howard & Kattell, LLP in Binghamton.
“A well-written noncompete is designed to protect an employer,” she says, adding that noncompetes are the only way many employers feel comfortable sharing sensitive information with employees. But the reality is that many employers use them in a way that prohibits a former employee from working for anyone else, she notes.
That’s where the FTC comes in. The commission proposed in January to ban employers from imposing noncompetes, saying the ruling could increase wages by nearly $300 billion per year and expand the career opportunities for about 30 million people.
“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” FTC Chair Lina M. Khan said in a Jan. 5 release. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand.”
New York does currently enforce noncompetes, Lanouette says, but employers need to back them up with evidence of protected interests. They have to be reasonable in scope, both geographically and in length of time, she adds.
For example, if a Broome County software sales engineer had a noncompete saying she couldn’t work for another software company for two years within a 50-mile radius, her options would boil down to trying to fight the noncompete in court, changing careers, or moving, Lanouette says. That engineer might have a good case in court due to the restrictive nature of the noncompete.
“I think there are some legitimate concerns in how noncompetes are used,” Lanouette says. Employers can use other tools such as non-disclosure or non-solicitation agreements, that prohibit former employees from sharing sensitive information or soliciting customers and/or employees from their former employer.
The FTC’s rule would make it illegal for an employer to enter into or attempt to enter into a noncompete with an employee, maintain a noncompete, or represent to a worker — under certain circumstances — that the worker is subject to a noncompete.
The rule would apply to independent contractors, as well as any paid or unpaid employee and would require employers to rescind existing noncompetes and inform workers they are no longer in effect.
The change would not apply to other types of employment restrictions such as non-disclosure agreements, as long as they are not so broad in scope that they function as noncompetes.
As of press time, the FTC received more than 5,300 public comments on the proposed rule. Once the FTC has reviewed and responded to comments, it can make any modifications it deems necessary to the rule.
Occasionally, Lanouette says, the FTC will withdraw a proposed rule, “but I don’t see that happening here.”
She suspects when the new rule is formally published, the FTC will immediately be sued in response. Litigation could pause the rule while the issue is hashed out in court.