ANALYSIS: Lawyers Are Prepping for FTC’s Final Noncompete Rule

Bloomberg Law’s most recent State of Practice Survey asked a number of commercial practitioners for their views on the Federal Trade Commission’s proposed rule banning noncompete clauses in employment agreements. Their responses reflect the uncertainty that the proposed regulation is creating, but also suggest how the industry might adapt to new guidance.

Changing Noncompete Practices?

Just over 800 attorneys responded to the survey. However, only about one-half of these practitioners deal with noncompete agreements or clauses.

Sixty-one percent of these respondents reported no changes in the way that they draft, review, or negotiate noncompete agreements or clauses—an unsurprising number that likely reflects the speculation regarding what the FTC’s proposed rule will ultimately look like.

However, a majority of the respondents who use noncompetes agreed that their practices would change if the rule is adopted as proposed. Only 15% said that the proposed rule has already changed how they approach noncompete agreements.

Many practitioners did say that the proposed rule has influenced how they advise on issues related to noncompetes:

• 41% of respondents to this question noted that they now advise clients to take stock of their practices in this area, including recordkeeping practices;
• 31% advise clients to consider provisions or arrangements other than noncompete clauses to accomplish the hoped-for results; and
• 26% advise clients to limit noncompete agreements to certain classes of employees.

Fifty-eight lawyers responded to a question about how their practices and client policies have changed since the FTC announced its proposed rule. Six out of 10 of these attorneys indicated that they’re considering limiting the use of noncompete agreements generally or to certain groups of personnel. Only two respondents mentioned that they no longer use noncompete agreements following the FTC announcement.

Alternatives

What other measures are attorneys considering as alternatives to noncompete clauses in employment agreements? A majority of those who responded indicated that the most likely substitutes would be confidentiality agreements (76%); nonsolicitation agreements for employees (67%); nonsolicitation agreements for customers (55%); and warnings regarding trade secret protection and litigation (69%).

Forward Looking

When asked to predict what the FTC will do in final rulemaking, most respondents said they’re unsure. The remaining predictions are about equally divided between the rule being adopted substantially as proposed, or being adopted with significant differences from the current draft.

The comment period on the proposed rule closed on April 19, and there’s no schedule for when the FTC will respond with a further announcement. While it’s clear that lawyers are preparing for change, what that change may be is still anyone’s guess.

Bloomberg Law subscribers can find related content on our Practical Guidance: Restrictive Covenant page as well as our Noncompetition Agreements Chart Builder resource.

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