Page 16 - 78740_MSBarSummerMagazine_HiRes_r1

entered into in connection with the sale of a business. The FTC
has indicated that a person who is selling all of their ownership
interest in a business or substantially all of the operating assets of 2 Id.
the business is permitted to enter into a non-compete agreement
with the buyer of the business.
Next Steps and Future of Proposed Rule
The FTC’s proposed rule is just that—proposed; it is not yet
final, and is likely to face challenges. Members of the public may
comment on the rule, with comments due in early March 2023.
After this comment period, the FTC may make changes to the rule
based on those comments. From there, the public will be given
an additional 60-day period before the rule is published in final
form, followed by a 180-day period before employers and affected
entities have to comply with the rule. So, at a minimum, U.S.
employers likely have until at least the end of 2023 before the rule
(in whatever form) goes into effect.
Moving forward, the proposed rule could find itself with a
number of potential fates once this period of notice and comment
is over with. For example:
• The FTC could leave the proposed rule “as is,” essentially
prohibiting the use of all non-competition provisions;
• The FTC may attempt to modify and soften the proposed
rule—for instance:
o By only prohibiting the use of non-compete provisions
with respect to a specific subset of employees, such as blue
collar or lower-wage earning employees;
o By attempting to regulate and restrict the method in
which non-competition provisions are utilized—such as by
requiring disclosure of a non-competition requirement to
prospective employees in advance.
• The FTC may strike the proposed rule altogether.
Moreover, any final rule by the FTC will almost certainly
be challenged in court by litigants who will argue, among other
things, that the FTC has exceeded its authority under existing
Supreme Court precedent. The results from last year’s battle over
OSHA’s vaccine mandates combined with the current composi-
tion of the Supreme Court suggests that a majority of the Justices
would be receptive to arguments that the FTC overreached its
authority.
Given the broad reach of the FTC’s proposed rule, it is certain-
ly understandable that employers will be concerned. Given what
is at stake if the proposed rule goes into effect, parties impacted
by non-compete, non-solicitation, and non-disclosure agreements
should take advantage of the time they have over the next few
months to audit their agreements, to look for provisions that
might be invalidated by the FTC, and to make their voice heard
by commenting on the proposed rule. Businesses with questions
about how the proposed rule might affect their employment prac-
tices are advised to seek legal counsel.
16 SUMMER 2023
Notes:
1 Executive Order 14036 of July 9, 2021 - 86 FR 36987.
3 Id., at §§1, 5(g).
4 Id., at § 5(g). Interestingly, the Executive Order expressly stated that
its goal was to curb the “unfair” use of non-compete clauses. However, in
remarks accompanying the Executive Order, the White House clearly stated
that President Biden “encourages the FTC to ban or limit non-compete
agreements” altogether. See https://www.whitehouse.gov/briefing-room/state-
ments-releases/2021/07/09/fact-sheet-executive-order-on-promoting-compe-
tition-in-the-american-economy/
5 https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/07/09/
remarks-by-president-biden-at-signing-of-an-executive-order-promot-
ing-competition-in-the-american-economy/
6 Id.
7 Id.
8 See 86 FR 36987, at § 5(g). Far short of the type of sweeping prohibition
that many felt President Biden would try to implement by executive action
following his promises on the campaign trail.
9 For example, three states—California, North Dakota and Oklahoma—cur-
rently prohibit the enforcement of non-compete agreements in total.
10 Cain v. Cain, 967 So. 2d 654 (Miss. Ct. App. 2007); see also, Thames v.
Davis & Goulet Ins., Inc., 420 So. 2d 1041, 1043 (Miss. 1982).
11 Id.; see Bus. Commc’ns, Inc. v. Banks, 91 So. 3d 1, 10-11 (Miss. Ct. App.
2011).
12 Banks, 91 So. 3d 1 at 11.
13 Thames, 420 So. 2d at 1043.
14 Herring Gas Co., Inc. v. Magee, 813 F.Supp. 1239, 1245 (S.D. Miss. 1993);
Frierson v. Sheppard Bldg. Supply Company, 154 So.2d 151, 156 (Miss. 1963).
15 See Banks, 91 So. 3d at 1 (upholding 1-year limitation); Union Nat’l Life
Ins. Co. v. Tillman, 143 F. Supp. 2d 638 (N.D. Miss. 2000) (upholding
1-year limitation); Tex. Road Boring Co. of La.-Miss. v. Parker, 194 So. 2d 885
(Miss. 1967) (upholding 2-year non-compete); Magee, 813 F. Supp. at 1239
(upholding 6-year non-compete).
16 Kennedy v. Metro. Life Ins. Co., 749 So. 2d 362, 367-68 (Miss. 2000); see
also, Empiregas, Inc. of Kosciusko v. Bain, 499 So. 2d 971, 976 (Miss. 1992)
(Mississippi Supreme Court held that a non-compete provision prohibiting
terminated employee from working for “any competitor, which operated
within a fifty (50) mile radius of any location at which he had worked within
twenty-four (24) months prior to termination” was unreasonable under facts
of the case); but see, Brown and Brown of Mississippi, LLC v. Baker, 2018
WL8805937 (S.D. Miss. 2018) (Mississippi federal court held similar provi-
sion may be enforceable against employee who voluntarily resigned).
17 Timber Lake Foods, Inc. v. Estess, 72 So. 3d 521 (Miss. Ct. App. 2011)
(upholding 250-mile restriction and stating in dicta that a nationwide restric-
tion would have reasonably protected the employer’s interests and acknowl-
edging the need for broad geographic scope due to the advancements in
technology); See Tex. Road Boring Co. of La.-Miss. v. Parker, 194 So. 2d 885
(Miss. 1967) (upholding 100-mile non-compete).
18 January 5, 2023; P201200; https://www.ftc.gov/legal-library/browse/fed-
eral-register-notices/non-compete-clause-rulemaking. The FTC’s Proposed
Rule seeks to add a new subchapter J, consisting of part 910, to Chapter I in
Title 16 of the Code of Federal Regulations.
19 The FTC cites Section 5 of the FTC Act (15 U.S.C. § 45), which broad-
ly prohibits unfair methods of competition and unfair or deceptive acts or
practices in or affecting commerce, to support its rule-making authority in
this area.