The Federal Trade Commission is considering an administrative rule that would enact a broad ban on non-compete agreements that would prohibit contracts that restrict the employee from working for a competitor or starting a competing business.
The rule would also apply to ‘de facto’ non-competes, such as non-solicitation agreements, that have the effect of limiting a worker’s activities after employment.
The proposed rule will likely have a negative impact on the competitiveness and value of closely held businesses. Non-competes in equity transactions would be prohibited unless the equity stake involved is at least 25 percent.
A proposed rule pending before the Federal Trade Commission would bar noncompete agreements across-the-board, and in a way that could bring some very profound changes to the business climate in this country. If it is adopted in its present form, it likely will have a direct effect on the value of the investments of business owners in their own businesses and make the smaller, privately held business less competitive.
This proposed rule is a big shift in resources from business owners to the employees. It is something to watch and understand because of the effect it is likely to have if the proposed rule is adopted in its present form. It’s controversial and has already run into opposition from the U.S. Chamber of Commerce.