Employers Prompted to Evaluate Employees’ Access to Confidential Information
In November 2022, the FTC issued an updated policy statement regarding the scope of unfair methods of competition under Section 5 of the FTC Act. The FTC appears to now seek preventing what it perceives to be new threats to competition. In the past, the FTC bounded its analysis by the rule of reason and to promote consumer welfare. Without guidance on how the FTC would employ its new and broad views on Section 5, future cases the FTC files might illuminate what that standard will be. The FTC has also announced a proposed rule to bar covenants not to compete in line with this new policy.
Whatever the FTC decides on for the new rule, there will likely be challenges to its authority to make that rule. The recent decision in West Virginia v. EPA, 142 S.Ct. 2587, 2608 (2022) offers some guidance on the legal challenge the FTC may face. Under West Virginia, the Court announced that the major questions doctrine requires administrative agencies demonstrate there exists clear congressional authorization to claim the power to make decisions having economic and political significance. The FTC has claimed the proposed rule would increase employee earnings by about $300 billion per year and save consumers about $148 billion annually on health care costs. Those facts show that the proposed rule involves a major question because it concerns a change having economic significance. (An earlier Counsels Corner post discusses the current challenge to the Chevron doctrine, which may also affect a new rule.)
The FTC public comment period for the proposed rule has concluded. Several comments have shown there may be a middle ground between advocates favoring restrictive covenants and those opposed. For instance, restrictive covenant advocates agree that front line workers, as opposed to company officers, should not have to enter into non-compete covenants. The tension seems to be whether non-solicitation covenants are sufficient for all employees rather than requiring non-compete covenants for them. Many states have already begun limiting employers’ ability to use restrictive covenants, including non-compete terms.
Current trends warrant employers reviewing all restrictive covenants agreements to check whether they comply with the state law that governs and consider what is necessary to protect their legitimate business interests. Employers should evaluate employees’ access to confidential information, trade secrets, and the ability to harm customer goodwill.
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Becker attorneys represent public and private clients in complex business litigation throughout the United States in federal and state courts, and in arbitration.
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Jon Polenberg is a senior trial lawyer for Becker & Poliakoff, P.A., headquartered in Ft. Lauderdale, FL, who regularly represents clients for their matters proceeding in state court, federal court, arbitration, and regulatory agencies. Jon also heads up e-discovery and data analytics for the firm’s business litigation practice. He represents clients in both symmetric and asymmetric matters involving varied complex e-discovery and legal issues.