Are the House and Senate Trying to Ban Your Noncompete Agreements?

The House and Senate have recently introduced a bill that would ban noncompete agreements.

The Federal Trade Commission (FTC) recently announced a proposal, which would eliminate noncompete agreements, except in limited situations.

The proposed Workforce Mobility Act of 2023, by the House and Senate, would disallow individuals and businesses entering, enforcing, or attempting to enforce noncompete agreements. The FTC’s proposal would apply to past, present, and future noncompete agreements, while the Workforce Mobility Act would only apply to those agreements entered after the bill is enacted.

The proposed bill provides three limited exceptions in which noncompete agreements would still be valid:

• When the sale of goodwill or ownership interests in a business takes place, the buyer could include a noncompete provision in the contract to bar the seller from running a similar business in the same geographic area.
• A buyer or seller of goodwill or ownership interests in a business could enter into a severance agreement with senior executives including a noncompete provision that applies for up to one year, only in the geographic region where the company previously operated. Such an agreement must provide for severance payments of at least one year’s salary or compensation if employment is terminated.
• Noncompete provisions would be allowed for the purpose of stopping departing partners from running similar businesses in the same geographic area if the partnership is dissolved.

This bill would create a private form of action for the individuals against employers for violations of the bill. Recovery would encompass actual damages and attorney fees.

Moreover, state attorneys general could in fact bring claims against the employers as well for violations of the proposed bill.

This is an update from our January 11, 2023 post, titled The FTC Proposes Rule to Ban Noncompete Clauses for all US Workers. Click here to read that post!

If your business has any questions on this topic or any other matters, please do not hesitate to contact the attorneys at The Royal Law Firm at 413-586-2288.