Early in 2023, the Federal Trade Commission (“FTC”), the branch of the federal government responsible for maintaining competition in the market place and work place, issued a notice of rulemaking in which it announced that it was considering a rule that would abrogate non-compete agreements in all fifty states.
The announcement caused uproar because non-compete agreements had previously been considered to be a standard component of almost every employment agreement. Many state legislatures immediately began considering similar legislation. At this point, however, the FTC has not taken nay final action, and many state legislatures have postponed action on their legislation.
The exact status of non-compete agreements at the present time is unclear, but the New York Attorney General has issued a statement on non-competes that provides practical guidance for lawyers and judges on the enforceability of such contracts. This post will provide a summary of the important portions of this statement.
What is a “non-compete”?
The statement begins with a definition of non-compete agreements as an agreement that prohibits an employee from accepting a job with a competitor and from opening a competing business. The standard non-compete agreement specified a period during which the non-compete is effective and the geographic area to which it complies.
Standards for enforcement
The Attorney General’s statement proposes four standards to judge whether a non-compete is enforceable. A non-compete is enforceable only:
- To the extent that it is necessary to protect the employer’s legitimate business interests.
- The agreement does not impose undue hardship on the employee.
- The agreement does not injure the public interest.
- The agreement must be reasonable in its duration; an agreement cannot “forever” bar an employer from accepting work from a competitor or founding a competing business.
As may be inferred from these criteria, each case will be decided based upon the specific facts of the case.
Any employer considering requiring new employees to sign a non-compete should become familiar with these criteria and if possible, consult with an experienced employment law attorney about the enforceability of specific clauses of any such agreement.