Does your business utilize non-competition agreements? Do you have a non-compete agreement in your job? If so, you want to take note of recent national trends that may impact whether these agreements will continue to be enforceable.

Historically, in Ohio – and in most states – courts have upheld non-compete agreements provided they were tailored to protect legitimate business interests. States including California, Minnesota, Colorado, Illinois, Virginia, and Washington, to name a few, have already prohibited or severely limited the use of non-compete agreements. Yet by and large, the federal government has left the issue to the states to regulate and enforce as they see fit.

Enter the Federal Trade Commission (FTC), which proposed a new rule in January 2023 that would ban the use of non-compete agreements, except in limited circumstances. The proposed rule would make it illegal for employers to:

• enter into or attempt to enter into a noncompete with a worker;
• maintain a noncompete with a worker; or
• represent to a worker, under certain circumstances, that the worker is subject to a noncompete.

The proposed rule would also apply to independent contractors and anyone who works for an employer, even unpaid workers.

The FTC’s proposed rule comes after the agency found that non-compete agreements constitute an unfair method of competition and thus a violation of  Section 5 of the Federal Trade Commission Act. It should be noted that the proposed rule would not apply to other employment restrictions, like non-disclosure agreements. The FTC is expected to take a vote in April 2024 on adoption of the final proposed rule.

Following on the heels of the proposed rule, the National Labor Relations Board (NLRB), has signaled its support of a ban on non-competes. Via a letter dated May 30, 2023, the NLRB general counsel issued a memo outlining the agency’s belief that overbroad non-compete agreements chill employees from exercising their rights to take collective action under the National Labor Relations Act. While the NLRB didn’t go as far to opine that all non-competes would be unlawful, it’s another signal from a federal agency that non-compete agreements are becoming disfavored.

Whether in response to the FTC-proposed rule or just in accordance with national trends, New York has become the most recent state to pass legislation banning employer use of non-competes. On June 20, 2023, the New York State Assembly passed a bill that would ban employers from utilizing non-compete agreements in the future, with some limited exceptions. If signed by the governor, New York would join the list of states curtailing the use of these restrictive covenants.

As a growing number of states – and now the federal government – have taken real and proposed action against non-compete agreements, it is critical that employers who utilize these restrictive covenants keep track of these fast-moving developments in the law. Now more than ever, employers should review their employment agreements and ensure that they are protecting legitimate business interests in the least restrictive ways possible.

If you have any concerns about the impact this may have on your business or any other employment related issues, please reach out to your contact at Mansour Gavin or one of our Labor and Employment attorneys.