Nearly one in five U.S. workers have some sort of noncompete clause in connection with their work. When a worker seeks to move on to a different opportunity, the enforceability of such noncompete clauses is an important issue for both the worker and the employer. However, the enforceability of noncompete clauses is very much in the air. The below discusses the current state of affairs and possible upcoming changes for employers and employees, and suggests steps that they—and the attorneys advising them—can take now to be ready for the potential changes ahead.
In early January of 2023, the Federal Trade Commission announced that it would be pursuing a new rule that would ban employers from imposing noncompete clauses on their employees. The FTC’s proposed new rule would make it illegal for an employer to:
· enter into or attempt to enter into a noncompete contract with a worker;
· maintain a noncompete contract with a worker; or
· represent to a worker, under certain circumstances, that the worker is subject to a noncompete contract.
The proposed rule would apply to independent contractors and anyone who works for an employer, whether paid or unpaid. It would also require employers to rescind existing noncompete clauses and actively inform workers that they are no longer in effect.
Whether, when, and in what form, the FTC’s proposed new rule will take effect remains to be determined and is subject to the FTC’s rulemaking process. The FTC reportedly will not vote on its final rule until April of 2024.
Moreover, the legality of any adopted rule is almost certain to be tested through litigation. Indeed, the FTC has not often, if ever, regulated contracts between single employers and their workers. Whether the FTC is overstepping the authority granted to it by statute—15 U.S.C. § 41 et seq.—will likely be a hotly-contested topic.
As it is currently contemplated, the FTC’s new rule would supersede any state statute inconsistent with the new rule. Regardless, employers and employees alike should be aware of current Colorado law concerning noncompete agreements and related issues concerning the protection of trade secrets.
Colorado law itself recently changed, effective August 10, 2022, concerning noncompete agreements. Noncompete agreements entered into or renewed after August 10, 2022, are deemed void under Colorado law unless an exception applies. See C.R.S. § 8-2-113; HB 22-1317 § 2(2) (clarifying that the recent change is not retroactive). The main exception is for “highly compensated” workers—$112,500 in annual compensation for 2023—where the noncompete clause “is for the protection of trade secrets and is no broader than reasonably necessary to protect the employer’s legitimate interest in protecting trade secrets.”
