Earlier this week, I returned from a short vacation to find the Federal Trade Commission (FTC) took action against three companies requiring them to invalidate their noncompete agreements with employees. Then yesterday, the FTC rolled out a proposed rule which, if enacted, would turn many state laws on the enforcement of noncompetition agreements (including Florida’s) on their heads.
I also came back to read that the United States passed two new federal laws providing additional protection to pregnant and nursing employees.
My partner, Lisa Berg will provide a more detailed blog post on the Pregnant Workers Fairness Act and the Providing Urgent Maternal Protections for Nursing Mothers Act (with the totally appropriate acronym-the PUMP Act).
However, let me give you a brief overview of recent Federal Trade Commission actions.
This past Wednesday, the FTC issued orders requiring three separate companies, each with a substantial workforce, to terminate their noncompetition restrictions which had been previously agreed to by their employees and cease using the restrictions on competition. The FTC also required all three companies to provide copies of its order to current and former employees who are covered by any noncompetition restriction. These three orders affect thousands of employees.
The FTC sent out the following, as part of its notice: “The commission finds that the use of noncompetes by these firms constituted an unfair method of competition and violated Section 5 of the FTC Act.”
Yesterday, the FTC took its next step. It issued a proposed a new federal rule to prevent any U.S. employer from entering into a noncompetition agreement with an employee, independent contractor, intern or others who provide services to a client or customer.
It also would require employers to rescind existing noncompete provisions in agreements with current and former workers. The proposed rule also requires employers to provide notice to these workers that their noncompete restrictions are no longer in effect and will not be enforced against them. The FTC’s proposed rule includes a model letter to be used to advise workers of their rights to seek other employment without the fear of being sued. The FTC made clear that if its proposed rule goes into effect, it will supersede any state statute, regulation order or interpretation of state law that is inconsistent with the FTC rule banning noncompetition restrictions.
The FTC has asked for comments on the proposed rule during the next 60 days. As a result, the proposed rule is not in effect yet and may substantially change over time before it is issued, if at all. In addition, if the rule does take effect in its current form, it is a pretty good bet that there will be federal court litigation challenging its enforceability.
I will keep you updated on the FTC’s proposed rule and I promise not to take another vacation for the next few months.