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FTC Blows Up Noncompetes

After a year of public comment and debate, the Federal Trade Commission has voted to ban virually all employee noncompete agreements nationwide.

A result of the purported ban on noncompete agreements will be massive uncertainty for the employers who rely on them.

That uncertainty is a feature, not a bug.

The ban is slated to take effect 120 days from publication. But lawsuits are already being filed and hearings are being scheduled. There’s a good chance a judge will put a temporary stop to the ban while the cases proceed.Whether or not a judge pauses the ban, it’s anybody’s guess how long the courts will take to sort things out—or what the final outcome might be.

Meanwhile, we have an election coming up. And it's looking to be a close one. If there's a change in administration, the next president can be expected to start appointing pro-employer commissioners to the FTC.

The uncertainty of the whole situation is amplified by the retroactive nature of the FTC rule. Not only would the rule prohibit companies from using non-compete agreements with employees going forward, but most noncompete agreements that are currently in effect would be deemed null and void.

What happens if the ban goes into effect and then the courts strike it down? What happens if a newly constituted FTC votes to change its policy and reverse the ban? Look for legal battles over “resurrected” noncompetes.

In fact, look for legal battles over all aspects of the ban and its aftermath.

Regardless of how things shake out, noncompete agreements will be under a cloud of uncertainty for the foreseeable future. Someone signing one today cannot know whether it will be valid six months, a year, or five years from now.

Even now, before any ban has taken effect, employers are revisiting their noncompete agreements. Risk averse as companies tend to be, we can be sure many are already paring back their use of the agreements, tightening up the ones they still plan to use for the time being, and vetting possible alternatives.

And that's at least part of the point. Even if the ban goes down in flames, the FTC will have succeeded in putting many noncompetes on the chopping block.

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