The Federal Trade Commission (FTC) published a proposed rule on January 5, 2023, that would make existing and future non-compete agreements illegal. The FTC says that around 30 million people in the United States are bound by non-compete clauses which restrict their ability to pursue better employment opportunities.
A non-compete agreement is a contract, called a restrictive covenant, that restricts an employee from working for a business or starting a business that does the same kind of work as the worker’s previous employer. These agreements often apply regardless of whether one leaves an employer voluntarily or is terminated.
The FTC says these agreements unfairly limit workers’ ability to earn a living and amount to an “unfair method of competition.” This rule, if it becomes an official regulation, will make existing non-compete agreements unenforceable and employers will have to notify their employees that their non-compete agreements are no longer valid within 180 days of the rules formal publication. It will also make it illegal to enter into new non-competes with employees.
The rule will not bar non-compete agreements for persons who are selling a business.
Right now, in South Carolina, non-compete agreements are enforceable if the employee got something of value for signing the agreement (called consideration), if they do not violate South Carolina public policy, and if they are reasonable as to their geographic reach, duration in time, and scope of work.
CBPH is experienced in assisting employees and former employees in reviewing restrictive covenants and in protecting them from claims they violated non-compete agreements. We are paying close attention to the rule-making process and will update here as significant developments occur.