Update on Non-Compete Agreement Legislation

by Bill Haut

On Jan. 5, 2023, the Federal Trade Commission (FTC) published a proposed rule which, if implemented, would bar employers from entering into non-compete agreements with their workers and require employers to rescind existing restrictions with both current and former workers. (Note: The proposed rule uses the term “workers” as a broad term to include employees, independent contractors, volunteers, etc.)

The original comment period to the FTC’s proposed rule ended March 20, 2023, but was extended to April 19, 2023, due to the large number of comments. As of April 12, the FTC had received approximately 16,000 comments, leading to an expectation among employment lawyers that the FTC will not issue a final rule until 2024. There is also a general expectation that any final rule would pare back the rescission rule and possibly limit application to workers earning above a specified revenue threshold.

It is important to keep in mind that the FTC’s proposed rule would continue to permit non-disclosure agreements and customer non-solicitation agreements, provided they are not so overly broad as to function as a non-compete agreement, which the FTC defines as a contract term that prevents the worker from seeking or accepting employment, or operating a business, once his or her employment ends.

Based on both the expectation of some action at the federal level, and the trend in both state legislation and common law, employers are advised to continue to keep their restrictive covenants limited to the assets they need to protect, such as trade secrets which include customer lists in most states including Indiana. Employers should consider the value and risk of including non-compete provisions rather than limiting their restrictions to non-disclosure and use of trade secrets. Also, sufficiently narrow non-compete agreements remain enforceable in Indiana and several other states. In short, limiting all such restrictions to legitimate business interests remains the best course of action.

Densborn Blachly LLP remains available to assist clients with any specific concerns related to non-compete agreements, non-disclosure agreements, and non-solicitation agreements. Please contact your Densborn Blachly attorney or Bill Haut at whaut@dblaw.com.

This publication should not be considered legal advice or a legal opinion. The contents are intended for general information purposes only. You are urged to consult with a lawyer on any specific legal questions or factual situations you might have or confront.

©Densborn Blachly LLP 2023