One of the most common questions posed by employees and employers alike, is whether a certain non-competition covenant is enforceable.  The answer varies, depending upon the particular language of the covenant, pertinent facts and the scope of the covenant.  However, the Federal Trade Commission (FTC) has proposed a rule that would definitively answer the question of enforceability with a resounding “no.”

Non-competition covenants have become increasingly disfavored throughout most of the United States, subject to local and state bans, which have typically targeted the use of non-competition agreements in specific industries or pertaining to specific types of workers.  For example, Connecticut has regulated non-competition covenants for security guards, broadcast employees, physicians and home health care, companion and homemaker employees.  Legislation has been introduced in the Connecticut General Assembly to further restrict non-competition covenants, but has not yet passed.

The FTC’s proposed rule would impose a national ban on non-competes that would apply to all industries and workers.  The FTC’s rule would prohibit employers from (1) entering into a non-compete with a worker, (2) maintaining a non-compete with a worker, and (3) representing to a worker that the worker is subject to a non-compete (under certain circumstances).  The proposed rule would apply to employees as well as independent contractors.  

While many local and state bans have not affected non-solicitation covenants, the FTC’s proposed rule could affect such covenants if they are too broad.  The proposed rule would not apply to other restrictive covenants, such as confidentiality covenants.  Non-competition covenants between a seller and purchaser of a business would not be affected so long as the restricted party owns a minimum of 25% of the business entity.

Although change is on the horizon, non-competition covenants remain legal and enforceable in the State of Connecticut, provided that such covenants are supported by sufficient consideration and are reasonable in terms of time and geographic restrictions.  Employers are encouraged to review their standard non-competition covenants on a regular basis to ensure their enforceability and alignment with business objectives.  For more information, please contact Daniel B. Fitzgerald or another BW attorney.