Today's news about the Federal Trade Commission's proposal to ban or severely limit non-compete agreements simply moves what has long been a focus of state regulation to the Federal level. Many states (Massachusetts, Colorado and others) have adopted laws modeled on California's longstanding measure favoring free employment mobility. While it is unclear if the FTC has the power to adopt and the legal stamina to enforce this (currently proposed) rule, these issues have real world relevance in the employment context. Toward that end, here are some thoughts on what motivates employers to enforce non-compete agreements from a previous piece I authored on this topic:
- Market conditions - whether the market is declining or growing, employers sometimes use post-employment covenants to hold on to talent or prevent a competitor from hiring that talent.
- An Employee is Good at What They Do - some employers mistakenly believe that the employer owns the skills and knowledge an employee develops during the employee’s career with the employer (sometimes earned at the employer's expense). While no one can own an employee's skills, that doesn’t mean a former employer won't try to make that case in court.
- An Employee Took An Employer’s Property - this is the prime reason an employer will enforce a non-compete agreement (as well as other legal rights). An employer's property - including digital, virtual or other intangible but important components of a business - belongs to the employer. Protecting that property is a key motivation to seek legal protection for it in court.
- The Customer Calls and Mentions How Nice it was to Have Heard from Your (former) Employee - this is a key provocation for an employer to protect its business. Non-competes are not limited to bans on working for other employers - they frequently extend to other aspects of an employer's business, such as protecting a client or customer base.
A few closing thoughts on this important but developing topic - neither the FTC proposal nor the current state employee mobility regulations impact existing laws that protect important property rights, such as the protection of trade secrets or proprietary information. Those property continue to merit legal protection. But given the patchwork of state regulation, employers and employees alike should have a full understanding of which state employee mobility laws apply as well as whether some state laws reach and apply to contracts in other states. In the meantime, we will continue to monitor the FTC's efforts to federalize these important employment measures.