FTC Begins Review of Rule on Restrictive Covenants

The Federal Trade Commission (FTC) has begun the process of reviewing a potential change to federal regulations about the use of restrictive covenants in employment contracts. The goal of these changes is, ostensibly, to allow employees a greater degree of freedom to change employment without fear of legal retribution. Employers, however, are wary of these potential changes, which they say may make it easier for employees to personally benefit from trade secrets or other confidential information.

What Are Restrictive Covenants?

“Restrictive covenants,” in the context of employment law, is another term used for so-called “non-compete agreements.” These covenants are used to restrict an employee’s ability to work in the same industry and market as their employer, to prevent them from using knowledge and contacts they obtain on the job for the benefit of someone other than their employer. Restrictive covenants are often used in professions that deal heavily in trade secrets, or where access to potential clients is considered highly valuable.

Why Do Employers Use Restrictive Covenants?

Employers typically use restrictive covenants to limit the practice of “poaching,” where an employer’s competitor will hire an employee with the intent of taking advantage of their specialized knowledge or contacts in the employer’s industry. They also do this to prevent employees from taking trade secrets or other classified information and starting their own business, competing against their employer in their same market. This helps employers to maintain a competitive edge without fear that they are effectively training their own competition.

Why is the FTC Looking to Regulate Restrictive Covenants?

While the use of restrictive covenants may be theoretically justifiable in many circumstances, in practice they are often used to keep employees locked in their current positions. They lose the ability to move to another employer who may be able to pay them better wages or give them better benefits, out of fear of being sued for violating their non-compete agreement. They also act as limitations on potential future competition, chilling the market as a whole by keeping employees from striking out to form their own competing companies.

 

What Would This New Regulation Do?

The new regulation would, supposedly, limit the extent to which employers could use restrictive covenants in employment contracts. While discussion of the change is currently in its earliest phases, both the FTC and Congress have been examining potential changes to laws surrounding restrictive covenants for years. If a new regulation is put into place, it could significantly help employees get out of restrictive employment contracts that trap them in their current place of employment.

If you have gotten into a legal dispute with your employer, it is important that you seek the guidance of an experienced New York employment lawyer who can protect your legal rights and advocate on your behalf. Steven Mitchell Sack, the Employee’s Lawyer, is a New York employment lawyer with more than 40 years’ experience handling the many aspects of employment law. To schedule an appointment with New York City employment lawyer Steven Mitchell Sack, call (917) 371-8000 or visit his contact page.

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