Non-compete agreements are coming under the microscope in Delaware and elsewhere.
The agreements, which differ somewhat from nondisclosure agreements, have their place in business, with high-level cases sometimes making their way to Delaware Chancery Court.
The Federal Trade Commission is now eying a new rule that would ban employers from imposing non-competes on most workers. The FTC cited abuses that have taken place. For example, a warehouse or fast food worker who is subject to a non-compete.
The FTC estimates that getting rid of the noncompete would expand career opportunities for about 30 million Americans.
Clearly, some employers have overly broad noncompetes, perhaps betting that some staffers would hesitate to start their own business or make a career move, even if the agreement would not stand up in court.
The US Chamber of Commerce opposes the change and is considering a lawsuit. One FTC commissioner Christine S. Wilson was a firm no on the rule and issued a lengthy statement that, among other things, claims the rule exceeds the powers of the FTC. Wilson is the lone Republican on the commission. Given the current stance of the U.S. Supreme Court, it’s probable that the rule could be struck down.
The FTC is asking for comments on the proposed rule between now and March 10.
Businesses would be wise to point out cases and situations where a non-compete is necessary.
Meanwhile, Chancery Court last year narrowed the scope of a non-compete in a case involving the sale of a company where the compensation of an individual was part of the sales agreement. The individual joined another company and was promptly sued.
An analysis of the Chancery decision seems to suggest that companies review future non-competes and use specific legal language aimed at protecting their interests and refrain from overreaching provisions. With the FTC rule more than a remote possibility, an overall review of all noncompetes on file would seem to be a good idea. – Doug Rainey, chief content officer.