Founder
The Federal Trade Commission (FTC) has issued a final rule, essentially banning non-compete agreements by making them unenforceable. For business owners who have employees, this is certainly a development which is causing concern. It is very common indeed, when hiring an employee, for an employer to have the employee sign a non-compete, wherein the employee agrees that he/she will not take employment which competes with the business of the employer, and that ban usually continues for a year or so after the employee leaves the current employer. In order to make the non-compete agreement more equitable, some businesses have limited the non-compete feature, geographically, so that an employee who leaves can find other employment with a competitor, but only if the competitor is miles away.
The new FTC rules prevents these agreement from being enforced, with the rationale that they prevent people who leave the employ of one company from working for another company where that employee can use his or her skills, or where appropriate, obtaining another job in his/her profession.
What is an employer to do now, if not able to obtain non-compete agreements? One is still permitted to have non-disclosure agreements, whereby the employee agrees not to disclose any information he/she has obtained while in the employment of one company, or to steal intellectual or proprietary information. While helpful, a non-disclosure agreement is not always successful in preventing this bad behavior. Of course, until an employee has shown that he or she is trustworthy it likely makes sense for the employer to be careful about disclosing proprietary information to the employee. It also seems, with the new rules, that an employer can prevent the employee from stealing customers, which of course is extremely helpful.
The FTC position is that if employees are treated well and are happy in their job, they will not engage in competitive behavior. It also appears that there are no prohibitions against the owners of a company. Therefore, if one owns a part of a company, that person may not compete with the business of that company. That would be part of the owner’s fiduciary duty to the company.