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Bipartisan bill would ban most noncompetes

A bill that would essentially ban noncompete agreements has been introduced in both the House and Senate.

The measure comes in the wake of the Federal Trade Commission’s (FTC) recently announced proposal to eliminate noncompetes except in limited situations.

Under the Workforce Mobility Act of 2023, individuals and businesses could not enter into, enforce or attempt to enforce a noncompete agreement. Employers would be required to openly post notices to inform employees of the ban on noncompetes.

While the FTC ban applies to existing and future noncompete agreements, the proposed bill in Congress would apply only to noncompetes entered into after the date of enactment.

This marks the third introduction of the act in Congress. While it languished in 2019 and 2021, it has gained new energy this year and seems to have bipartisan support in the House and Senate.

The proposed bill & exceptions

Under the proposed bill, a “noncompete agreement” is defined as an agreement between a “person” and a worker that restricts the worker from performing work for another person for a “specified period of time,” in a “specified geographical area,” or work that is “similar to such individual’s work” performed for the other party to the agreement, after the working relationship between the parties has ended.

The bill would not apply to restrictions during employment that are typically contained in conflict-of-interest policies and other employment policies and agreements. It does not address the effect on non-solicitation agreements.

There are three limited exceptions in which noncompetes would still be allowed and enforceable:

  • 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.

The act provides for joint authority for enforcement between the FTC and the Department of Labor.

It also creates a private right of action for individuals to sue employers for violations, including actual damages, along with attorney fees and costs for winning plaintiffs.

In addition, state attorneys general could bring claims against employers for violations of the act.

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