When the Federal Trade Commission (FTC) announced a near-total ban on restrictive covenants that are meant to prevent people from working for a former employer’s competitor, many businesses objected, and some challenged the new rule in courts around the country. One Texas judge placed a partial temporary block on enforcement of the rule pending a decision by the end of August. The result was different in a Philadelphia federal court.
Eastern District of Pennsylvania District Court Judge Kelley Hodge upheld the FTC’s rule barring non-compete agreements, marking a significant victory for employee mobility and a potential shift in the employment landscape. It is estimated that 30 million Americans, amounting to nearly 20 percent of the nation’s workforce, are bound by some type of restrictive covenant.
The Pennsylvania challenge was brought by a small tree service company which claimed that the legislation creating the FTC does not authorize such broad rulemaking authority. Supporters of the prohibition on non-compete agreements say the measure encourages employee mobility, increases wages and promotes innovation. However, the lawyer for ATS Tree Services claims that non-compete agreements are necessary to protect his client, which could end up in competition with workers that ATS trained on tree-trimming techniques.
In addition to the Pennsylvania and Texas cases, the FTC’s ban on non-compete agreements has faced legal challenges in other states as well. Given that there are already two divergent decisions at the District level, It is likely that the issue will ultimately be decided by a higher court.
Both workers and employers should be aware of the legal developments relating to the non-compete ban, which is presently scheduled to take effect on September 4. Companies might wish to review and possibly revise existing employment contracts to clarify each side’s rights under the proposed changes. Not only does the FTC’s rule block new non-compete agreements, but it also invalidates restrictions that currently bind millions of workers.
Consulting with an attorney who has substantial experience handling restrictive covenant matters is the best way to learn how this major revision would affect you. At The Reddy Law Firm, P.C. in Alpharetta, we can review an existing non-compete agreement and advise as to its legal effect under the existing rule and if the FTC rule change is finalized. To make an appointment for a meeting regarding any type of matter relating to a restrictive covenant, please call 678-629-3246 or contact us online.
