Agreements that limit an individual’s ability to compete with a former employer have been controversial and the subject of much legislation and litigation. Federal legislators have proposed a law that would prohibit their use. Consider the following…
Non-compete agreements (cont’d)…
My prior blogs briefly discussed the common law rule regarding competition with employers by employees, both during and after employment, as well as the historic use of agreements that prohibit employees from competing with their employers after the employment ends (i.e., “non-compete agreements”). In short, despite much state legislative and judicial limitations on the use of non-compete agreements, they remain generally enforceable in most states.
Federal limitation of non-compete agreements (cont’d)…
As discussed in my prior blogs, this year, the Federal Trade Commission (“FTC”) is attempting to curtail or eliminate the use of non-compete agreements through enforcement actions and rulemaking. Congress has also joined the assault on non-compete agreements.
The Workforce Mobility Act of 2023 was reintroduced by a bipartisan group of Senators earlier this year. If signed into law, the Act would prohibit the use of non-compete agreements, subject to only two exceptions. The first exception allows a seller of a business entity to enter into a non-compete agreement. However, the exception applies only to senior executives who have a severance agreement as part of the conditions of sale. The second exception allows a partner of a partnership to enter into a non-compete agreement upon dissolution of the partnership or dissociation of the partner from the partnership.
The Act would also require commercial enterprises to post notice of the prohibition of non-compete agreements in a conspicuous area of the workplace and conduct a public awareness campaign to inform the public of the provisions of the new law. The law would further direct the FTC to investigate and enforce the law, and would authorize individuals and state attorneys general to bring civil actions.
Conclusion…
By any estimation, if pass, the bill would be a game changer. It would be prudent for employers to familiarize themselves with, and monitor developments in, the bill and other federal actions that seek to curtail or eliminate the use of non-compete agreements. Please feel free to contact me if you would like more information about non-compete agreements or the Workforce Mobility Act of 2023.
NEXT ISSUE… The next issue of this blog will discuss recent changes to New Jersey law regarding converting corporate entities.
PLEASE NOTE: This blog is merely for the general interest of the reader. It is not legal advice or opinion and it does not create an attorney-client relationship. Please call me at 973-921-0600 if you would like to have a free initial telephone consultation or learn more about me or my practice. Thank you.