By Taylor Bell –
While workers are major assets to a business, they can also become major liabilities.
To mitigate risks, businesses often rely on non-compete agreements, non-disclosure agreements, non-solicitation agreements, and confidentiality agreements. However, the permissible scope of these agreements is limited by state laws, and courts often view them skeptically. In recent years, federal agencies such as the Federal Trade Commission (FTC) and the National Labor Relations Board (NLRB) have taken aggressive stances against these agreements, even proposing outright bans.
I. The FTC’s NCC Rule: Shaping the Battle Lines
In January 2023, the FTC proposed the Non-Compete Clause Rule (Proposed Rule), aiming to declare non-compete agreements an unfair method of competition. The Proposed Rule, in its current form, would ban non-compete agreements for all types of workers.
The FTC’s rationale behind this proposal is that non-compete clauses hinder worker mobility and stifle competition by restricting the flow of talent and ideas. The Proposed Rule provides two primary alternative approaches for consideration, but the FTC has yet to release any updates since the comment period ended in April 2023. If finalized, this rule would supersede state laws governing non-competes, significantly impacting businesses nationwide.
II. The NLRB: Enforcing the Frontiers
On February 21, 2023, in McLaren Macomb, the NLRB overruled previous rulings by holding that offering severance agreements with broad non-disparagement and confidentiality provisions to represented employees is unlawful. The NLRB asserted that such agreements impermissibly interfere with employees’ exercise of their Section 7 rights.
In Memorandum GC 23-08, released on May 30, 2023, the NLRB’s General Counsel stated that, in most cases, non-compete agreements violate Section 8(a)(1) of the National Labor Relations Act. The NLRB’s position suggests increased scrutiny and potential limitations on the enforceability of non-compete agreements, non-disclosure agreements, non-solicitation agreements, and confidentiality agreements.
III. The Scope of Protection: Strategic Battle Planning
As the regulatory landscape evolves, businesses need to devise their own battle plans to safeguard their confidential and proprietary information. The FTC and NLRB recognize the importance of protecting proprietary and trade secret information through workplace agreements, albeit with limited scope.
While it may not be appropriate to bind low-wage workers lacking access to trade secrets, high-level executives, for example, can be subjected to agreements aimed at protecting valuable company information. It is crucial for businesses to develop narrowly tailored agreements that can withstand the heightened scrutiny brought by the evolving regulatory landscape.
In the battle of boundaries surrounding non-compete and confidentiality agreements, businesses must navigate complex regulations and adapt their strategies accordingly. By staying informed about the FTC’s NCC Rule, the NLRB’s enforcement efforts, and the scope of protection available, businesses can safeguard their competitive advantage by protecting their confidential and proprietary information effectively.
Revisit Your Contracts
We urge business owners to revisit their contracts with these changes in mind. We are here to safeguard your business amidst the shifting legal landscape.
To discuss contract updates for your business, contact Taylor Bell at 469.916.9900 x 123 or email her.
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About Taylor Bell
Taylor Bell supports clients in a variety of transactional and litigation matters, with a focus in corporate and real estate transactions.
She received her J.D. with a concentration in Business Law from SMU Dedman School of Law in 2022, where she served as Associate Managing Editor of the International Law Review Association.
During law school, she interned with two federal judges and the Federal Trade Commission.
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