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FTC considers rule limiting use of noncompete agreements

The U.S. Federal Trade Commission (FTC) said in early January it is weighing a rule that would curtail companies from forcing employees to sign noncompete clauses that prevent them from working for competitors.

The announcement came after 19 state attorneys general wrote a letter last summer urging the FTC to limit or ban the agreements, which they say prevents workers from finding a better job or starting their own businesses.

The use of noncompete agreements has steadily grown

While noncompete clauses are thought to have begun for professionals, such as doctors and tech workers, they are now widely used, even for low-wage jobs requiring minimal training. Many companies use them to protect trade secrets.

A famous dispute arose in 2016 in Illinois involving the fast-food restaurant Jimmy John’s. As part of a settlement agreement, Jimmy John's removed the clause in its hiring contracts that banned its workers from taking jobs at competitor sandwich shops. The state argued, in that case, that the noncompete agreement was illegal.

FTC commissioners are skeptical of agreements

Any decision on a rule limiting the use of noncompete contracts will be made by the five FTC commissioners, of which three are Republicans and two are Democrats. One Democrat says she has not made up her mind but adds the agreements cause workers problems even in states where they are unenforceable.

A Republican commissioner agrees noncompete agreements limit workers’ abilities to find new jobs, but says he is reluctant to take up the issue without any direction from Congress or any historical legal precedents to point to in making a ruling.

Are noncompete agreements enforceable in Colorado?

Colorado’s attorney general did not sign the letter to the FTC in support of a rule limiting or banning the practice. However, noncompete agreements are typically not enforced in the state unless they meet four exceptions:

  • Protecting trade secrets
  • Protecting buyers when purchasing a business or its assets
  • Recovering expenses related to training an employee who stays less than two years
  • Restricting job mobility of executive and senior managers and professional staff

Noncompete agreements can be complicated for corporations and employees. Help from an experienced employment law attorney known for taking a creative approach to these contracts can be extremely valuable.

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