Although a Texas federal court permanently barred implementation of the Federal Trade Commission’s (“FTC”) final rule banning most restrictive covenants in connection with employment, the FTC has not given up. Or as Yogi Berra said, “it ain’t over ‘til it’s over.”
The U.S. Department of Justice (“DOJ”) and the FTC have now issued Guidelines for Business Activities Affecting Workers. The guidelines are another attempt by the FTC to address what it perceives as anticompetitive practices that hinder labor market competition and worker mobility. The guidelines can be found here.
Two of the five areas that the guidelines identify as subject to FTC scrutiny and enforcement are: (i) employment agreements that restrict workers’ freedom to leave their jobs, such as “non-compete provisions that prevent workers from leaving their job to join a competing or potentially competing employer; that prevent workers from leaving their job to start a new business; or that require workers to pay a penalty upon leaving their job;” and (ii) “overly broad non-disclosure agreements, training repayment agreement provisions, non-solicitation agreements, and exit fee or liquidated damages provisions.” According to the FTC, all such agreements and provisions raise antitrust concerns and potentially violate the Federal Trade Commission Act (the “FTC Act”) and other laws. The FTC claims to have the “legal authority” to address non-competes through case-by-case enforcement actions under the FTC Act.
It is significant to note the difference, however, between the FTC’s earlier rule that was struck down and the DOJ and FTC Antitrust Guidelines. The final rule would have prevented such provisions in employment-related agreements nearly across the board without further analysis. Under the recent Guidelines, the legality of these practices is highly fact-dependent, with the burden on the government in any enforcement action to prove that an agreement has an anti-competitive impact and violates the FTC Act.
It is unclear whether the Trump administration will withdraw this guidance. In the meantime, restrictive covenants – to the extent they are not already banned or limited by state law –are not dead yet. More than ever, restrictive covenants must be carefully and narrowly drafted to protect employers’ legitimate interests and comply with the FTC guidance and state law. Employers should review current agreements that contain restrictive covenants to ensure that they meet such criteria.
How Frier Levitt Can Help
Frier Levitt, with years of experience drafting and litigating employment and other agreements in the healthcare and other sectors, can help businesses review existing restrictive covenants as well as assist in crafting enforceable restrictive covenants in agreements going forward. Contact us today.
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