By Dawn Mertineit and Kate Perrelli

The FTC recently announced a proposed rule that, if implemented in its current form, would ban virtually all non-competes. The proposed rule has almost no exceptions, and even those are extraordinarily narrow. In addition to legitimate concerns about the breadth of the proposed rule, it remains unclear whether the FTC can regulate in this manner. Indeed, in light of the Supreme Court’s 2022 decision in West Virginia v. EPA, a legal challenge at the high court seems inevitable, and we remain skeptical that the FTC’s proposed rule will pass constitutional muster.

However, putting aside the overbreadth of the proposed rule and its shaky legal foundation, non-competes have been handled at the state level for centuries, and in our view should continue to be addressed by elected representatives. There has been a groundswell of legislative activity in this area over the last 15 years, with over a dozen new state laws having been passed in the last 5 years alone.

One of those statutes is the Massachusetts Non-Competition Agreement Act (“MNAA”), which tackles many of the alleged abuses highlighted by the FTC and other opponents of non-competes. For example, Massachusetts prohibits non-competes for “low wage” employees. Specifically, the MNAA prohibits enforcement of non-competes against employees who are non-exempt under the Fair Labor Standards Act. This prevents the use of non-competes with rank-and-file employees who don’t have managerial responsibilities.

The MNAA also requires an employer to provide a copy of a non-compete to a new employee by the earlier of the date that the candidate is provided with the initial job offer or ten business days prior to the commencement of employment. This requirement addresses the concern that an employee could be ambushed on their first day with a non-compete. For existing employees, the employer is obligated to provide a copy of the agreement no later than ten business days before the agreement will become effective, and is also obligated to provide additional consideration in exchange for the agreement.

Similarly, the MNAA requires that an employer advise an employee in writing of their right to review the agreement with counsel of their own choosing. Absent a clear provision in a non-compete to this effect, the non-compete cannot be enforced. The MNAA provides other reasonable limitations, including a prohibition on non-competes longer than one year, except where an employee misappropriates trade secrets, certain “presumptions of reasonableness” for geographic reach and scope of activities proscribed, and the requirement that a non-compete is supported by adequate consideration and a legitimate business interest.

These are reasonable restrictions that limit the potential for abuse of non-competes that the FTC claims to be concerned with, while still providing employers another tool to protect confidential information, trade secrets, and goodwill, as well as investment in their employees. Such restrictions are an appropriate response to concerns about potential abuse, unlike the FTC’s proposed rule, which we believe is far too blunt an instrument. And the requirements of the MNAA were debated at length, permitting various stakeholders—employers and employees alike—to provide their perspectives before legislators determined what would be appropriate safeguards.

Many who are hostile to non-competes point to California as “proof” that banning non-competes bears fruit. But Massachusetts’ economy is hardly a cautionary tale, especially in the tech and pharma industries. Despite Massachusetts’ acceptance of narrowly-tailored non-competes, our businesses are thriving, we are driving innovation, and our average employee salaries are higher than California’s average salaries. Moreover, California’s industry success and attractiveness as a location for employees can at least partially be chalked up to other aspects of the state (including, we must admit, its superior weather).  In contrast, other states that have banned non-competes (North Dakota, Oklahoma, and at least informally, Nebraska) are far behind Massachusetts in average employee salary. Obviously, employee wages cannot simply be tied to whether a state has banned non-competes.

In sum, the FTC, Congress, and state legislatures should not simply assume that banning non-competes is a panacea. Instead, legislators should consider Massachusetts’ example and impose reasonable restrictions that combat the potential for abuse of non-competes, while still promoting the protection of business’s intellectual capital.

Dawn Mertineit and Kate Perrelli are partners at Seyfarth Shaw LLP.