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Protecting Business Interests in the Face of the FTC’s Proposed Rule Banning Non-Compete Agreements

By: Stephanie E. Farrell, Esq. 

Non-compete agreements have long been used by employers to protect their business interests by preventing certain employees from immediately competing or going to work for a competitor of the employer after the employment relationship ends.Such agreements also are utilized in connection with the sale of a business to prevent the seller, who has profited from the sale of the business and its goodwill, from competing with the former business and destroying the value of such goodwill.

On January 5, 2023, the Federal Trade Commission ("FTC") proposed a new rule that provides that non-compete agreements are an unfair method of competition and therefore a violation of the Federal Trade Commission Act (the "Rule"). The proposed rule carves out a limited exception for non-compete clauses between the seller and buyer of a business, if the restricted party meets certain criteria.

The proposed Rule is currently open for the public to submit comments through March 10, 2023. If the FTC adopts the Rule, employers will be provided a window of time in which to rescind non-compete agreements with employees.Employers should consult with an attorney for other means by which they can continue to protect their legitimate business interests without running afoul of the FTC's new Rule.

To review the text of the proposed Rule, click the following link: Non-Compete Clause Rulemaking | Federal Trade Commission (ftc.gov)

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