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The Federal Trade Commission Proposes Ban on Non-Compete Agreements

On Behalf of | Mar 9, 2023 | Firm News

Employee Non Compete Agreement image

On February 5, 2023, the Federal Trade Commission (FTC) announced a proposed rule banning non-compete agreements with its release of a Notice of Proposed Rulemaking. If this rule becomes law, it would drastically change the labor market across all sectors of the economy. Further, on February 1, 2023, a bipartisan group of U.S. Senators introduced a bill called “Workforce Mobility Act of 2023” seeking to ban the use and enforcement of post-employment non-compete agreements nationwide. Versions of this Act were introduced several times previously, most recently in 2021. Therefore, companies must be aware that the “non-compete agreement” is in jeopardy.

The FTC proposed rule provides that non-compete clauses are an “unfair method of competition” under the FTC Act. The definition of worker under the FTC proposed rule includes not only our regular definition of employee, but also other “workers”.  The workers affected by the FTC Act are independent contractors, externs, interns, volunteers, apprentices, and even sole proprietors who provide a service to the company. The FTC rule also prohibits the company from representing to workers they are subject to a non-compete clause.

The Senate bill “Workforce Mobility Act of 2023” defines a “non-compete agreement” broadly as “an agreement entered into after the enactment of this law between a person and an individual performing work for the person who restricts such individual, after the working relationship terminates, from performing any work for another person for a specified period of time; any work in a specified geographical area; or any work for another person who is similar to such individual’s work for the person that is a party to such agreement”.

The Senate bill provides exceptions where the non-compete agreement involves the sale of a business or the dissolution of a partnership.  Most notably, and most importantly, the Senate bill clarifies that it does not preclude confidentiality agreements that protect trade secrets. The Senate bill authorizes the Federal Trade Commission as well as the Federal Department of Labor to enforce the prohibition on non-compete agreements and investigate violations. The Senate bill also provides for a private right of action for employees to sue employers for violating the ban and it allows the employees to recover not only actual damages but also attorney fees and costs.

Given the level of scrutiny of non-compete agreements as outlined above, companies should explore Trade Secrets and Confidentiality Agreements as vehicles for protection. Please contact a member of our Labor and Employment section with any  questions or concerns.

The Department of Labor and Independent Contractors

This is a reminder that the issue of employee versus independent contractor under the Fair Labor Standards Act (FLSA) is once again up for review. On October 11, 2022, the Department of Labor (DOL) announced a proposed rule which would reinstate the “economic reality” test for determining whether a worker is an independent contractor or an employee under the FLSA. The DOL stated that the proposed rule would create a framework that is more consistent with the FLSA’s purpose. The issue of employee versus independent contractor has been a political football kicked back and forth between different presidential administrations. The Obama Administration issued a proposed rule based upon the economic reality test. However, the Trump Administration revoked that rule and adopted a test emphasizing factors such as the nature and degree of the worker’s control over the work and the worker’s opportunity for profit and loss as the “most probative as to whether or not an individual is an economically dependent employee.” However, under the Biden Administration, the DOL has published a proposed rule similar to the Obama Administration’s “economic reality” test. The DOL’s proposed rule adopts a multifactor, totality of the circumstances analysis of the economic reality test.

Although the proposed rule is not finalized, it does reflect an intent to return to the Obama Administration’s approach to independent contractor classification. We will continue to monitor developments on the proposed rule. In the meantime, if you have any questions, please feel free to contact a member of our Labor and Employment Department.

Department of Labor Issues Guidance Covering Remote Employees

Working Women Employee image

On February 9, 2023, the Department of Labor (DOL) issued a Field Assistance Bulletin to clarify the application of the Fair Labor Standards Act (FLSA) concerning non-exempt remote workers. The guidance addresses the proper payment of remote workers, the application of eligibility rules under the FMLA, and the application of rest breaks, meal breaks, and lactation breaks for nursing mothers.

The Field Assistance Bulletin does not change the regulations; however, it does remind employers of the Department of Labor’s view on compliance requirements in the context of remote workers. Regardless of work location, short breaks, 20 minutes or less, are counted as compensable hours worked. This is true whether at home or in the office. Longer breaks, when employees are completely relieved from duty, are not considered work time and are therefore not compensable. If an employee working from home takes a three hour break to pick up a child from school, such time is not compensable under the FLSA. The Field Assistance Bulletin emphasizes that, regardless of whether the duties are performed at home or at the worksite, the FLSA regulations apply.

The Field Assistance Bulletin also explains the eligibility for employees under the Family Medical Leave Act.  Employers should be aware that it is the assigned work site where the employee reports to work normally or the work site from which work is assigned and not the employees home that is used to determine the 50-employee threshold.

The Department of Labor also reminded employers to consider legal obligations under both the FMLA and the American’s with Disabilities Act (ADA) when considering requests to work a reduced schedule ( See opinion letter 2023-1-A).

As most employers are realizing, remote work in some form is here to stay. This brings complications involving wage and hour laws, Family Medical Leave laws, and the American’s with Disabilities Act laws. Therefore, we recommend that employers maintain detailed and meticulous time keeping measures for their employees who work remotely or at a worksite not in control of the employer.