Chris Holman welcomes Anthony M. Dalimonte, Attorney, Foster Swift Collins & Smith PC, Southfield, MI
Watch Anthony and Chris discuss the U.S. Federal Trade Commission's (FTC) proposed new regulation about Non-Compete in the YouTube Video shared below:
- On January 5, 2023 the U.S. Federal Trade Commission (FTC) issued a proposed new regulation that would broadly prohibit employers from using or enforcing noncompete agreements with employees, former employees, contractors, or other workers. First of all, for those that don’t know, what exactly is a Non-Compete Agreement?
Generally, a non-compete agreement or clause in a contract wherein an employee promises not to enter into a competition with an employer after the employment period is over. Usually there is a time frame or geographic scope that accompanies these agreements. In Michigan, whether the agreement is enforceable depends on a variety of factors, such as scope, duration, geographic area, and the type of business.
- What would this proposed rule by the FTC do to current Non-Compete Agreements in place or proposed Non-Competes by employers?
The proposed rule would do three things: (1) forbid employers from entering into noncompete agreements or clauses with their workers, including independent contractors; (2) rescind existing noncompete agreements or clauses with current workers; and (3) require that employers notify their employees subject to noncompete agreements or clauses that those agreements are no longer in effect and may not be enforced.
- Are there any exemptions for businesses or employers under this proposed rule?
The proposed rule does include an exception for noncompete agreements related to the sale of a business or a person’s ownership interests in the business, if the person subject to the noncompete agreement is a “substantial owner of, or substantial member or substantial partner in, the business entity at the time the person enters into the noncompete” clause.
- Does this rule affect any other employment restrictions such as Non-Disclosure Agreements?
The proposed FTC rule also includes an expansive definition of what constitutes a noncompete agreement or clause. The rule does not generally apply to other types of employment restrictions, such as nondisclosure agreements, but this broad definition of noncompete clauses could affect NDAs (Non-Disclosure Agreements) and other employment restrictions if they are broad enough in scope to function as noncompete agreements. The proposed rule would also “supersede” any state law, regulation, or order that conflicts with its prohibitions on noncompete agreements or clauses. For Michigan employers, the FTC rule, if implemented, would override existing Michigan law that allows noncompete agreements. The rule would even exceed the requirements of Michigan House Bill 6031, now pending in the State Legislature, which would require employers to disclose their noncompete terms before hiring and prohibit noncompete agreements for low-wage employees (Michigan HB No. 6031).
- What are the next steps of this proposed rule by the FTC?
The next steps for the proposed FTC rule will be completion of a 60-day comment period, then the FTC will publish a final rule that will be effective 180 days after publication. Given the broad application and effect of the new rule, the rule when issued is likely to be challenged in court, which likely would delay or prevent enforcement.
About Anthony Dalimonte is an associate with the litigation practice group in the firm's Southfield office.
Tony began his journey with Foster Swift as a summer associate in 2020 before returning to the firm as an associate in 2021. Tony's experience includes conducting legal research and drafting memos, briefs, motions, and pleadings on matters concerning general and commercial litigation.
Prior to graduating from Wayne State University Law School, Tony received his B.A. from the University of Michigan and Master of Management degree from the Ross School of Business. During his tenure at the University of Michigan, Tony joined the University's football team as a walk-on defensive back.
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