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FTC Reviewing Non-Compete Agreements

On Behalf of | Sep 15, 2022 | Business Litigation

A non-compete agreement is a contract or clause that restricts an ex-employee from working for a competitor or working within certain bounds defined in the agreement. Non-competes are increasingly common in California, especially in the tech industry.

The power of non-competes

Non-competes exist primarily in industries where an employee might have access to technology or trade secrets that would be highly valuable to the competition. It is a way for employers to try to maintain control of that knowledge. However, they also place powerful restrictions on workers trying to find their next job, and can push them out of their industry of choice. Non-competes go against the spirit of a competitive marketplace, not to mention antitrust law, and so the Federal Trade Commission has begun reviewing them to establish whether they need to be regulated more tightly.

Companies that deal with core knowledge and intellectual property depend on non-competes to protect their information from being taken up and used by a competitor. There are other ways to do this, such as copyright law, so non-competes are not the only domain of business litigation that touches on this problem. The FTC may or may not decide to regulate these agreements, and state governments like California may also elect to pass their own regulations. Additionally, Congress can pass regulations for non-competes separately from the FTC’s decision.

Non-competes have started to play a bigger role in the California labor market, and they have also started to attract attention from federal regulators. The FTC may decide to impose limits or changes to how non-compete agreements can be written and enforced between employers and employees.