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FTC Ban on Non-Compete Agreements Not Likely to Hold Up

Staffing is a highly competitive business, and non-compete agreements are widely used by employers in the industry. In coming days, there will be a lot of news about the Federal Trade Commission's move to outlaw almost all existing non-compete agreements, defined as any agreement that prevents an employee from accepting a post-employment job with another company. This generally means a traditional geographic non-compete. The rule, if it becomes effective, is not likely to affect terms that prohibit soliciting or dealing with a limited class of clients and candidates that an employee had a relationship with. Details can be gleaned here in this excellent Shawe Rosenthal article:

FTC Bans Nearly All Non-Compete Agreements - Shawe Rosenthal LLP
On April 23, 2024, the Federal Trade Commission (FTC) voted 3-2 to issue a Final Rule banning nearly all non-compete clauses in employment agreements nationwide. As set forth in the FTC’s fact sheet, non-compete provisions are “an unfair method of competition” and therefore violate the Federal Trade Commission Act. The […]

In the staffing industry, confidentiality, non-solicitation and non-dealing agreements alone are an effective way to protect your firm from unfair competition and are less subject to the discretion of judges looking for ways to avoid putting someone out of a job. Therefore, in the long run this rule should not be a disaster for firms that have these terms in their agreements.

In any event, the FTC's unprecedented action is predicted by many to fail, because an enactment this important is probably beyond the agency's powers. Lawsuits will be filed asserting that such a sweeping rule can only be enacted by Congress. Employers should stand by for the moment and await further developments. The rule is not effective until mid-August, and we should know the outcome well before then. If by some chance the rule is upheld, employers will have some work to do, including advising their employees that their non-competes are no longer enforceable.