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Federal Trade Commission seeks to ban non-compete clauses

On Behalf of | Feb 2, 2023 | Breach Of Contract

There are a number of documents that people in the Dallas area review and sign when they start new employment. There is information about the companies’ policies and expectations. There may be documents about the benefits offered by the company, tax documents and other documents and contracts. One of these clauses that people often sign is a non-compete clause or agreement.

Non-compete clauses generally prohibit people from going over to the competition for a specific period of time after termination, whether people are fired or quit. These are designed to protect the employer. Most do not want employees whom they trained for a job to take what they learned about the company and then go use that knowledge to help a competitor. Non-compete clauses can be very valuable for the company’s success.

Non-compete agreements must meet certain requirements, but if they do, they are valid and can be upheld in court. However, the Federal Trade Commission (FTC) is now proposing a law that would ban non-compete clauses.

What the proposed FTC rule would change

The proposed rule not only bans future use of non-compete clauses. It would also invalidate existing non-compete agreements and force employers to make it clear to their employees that they are no longer bound by them. Independent contractors and any other people doing work for the company would be subject as well.

The rule would only apply to the non-compete clauses. Non-disclosure clauses and other restrictive covenants entered into between the company and employees would still be valid.

The rule has only made it past the first step in the rule-making process. There is a comment period that will be open until March of 2023. If the FTC formally adopts this rule, it would dramatically affect many businesses and it is important for them to monitor this potential rule change.

Many companies in Texas use and rely on non-compete agreements to protect their business. However, companies need to follow the laws and that may mean that they will no longer be able to use non-compete clauses. Consulting with experienced attorneys who are continually keeping up with changes to the law could be beneficial.