How Can Federal Actors Compete on Noncompetes? Examining the Need for and Possibility of Federal Action on Noncompetition Agreements

Authors

Robert McAvoy, Penn State Dickinson Law

Author ORCID iD

https://orcid.org/0000-0003-1875-9915

Abstract

Employees have been frustrated by the restrictiveness of noncompete agreements and confused about their enforceability for decades. The added complication of choice-of-law provisions in employment contracts with noncompetes creates a sea of unpredictability for both employees and employers.

Each state applies its own policy to noncompete agreements. While every state treats noncompetes differently than typical contract provisions, a broad spectrum exists between the states that are friendly and those that are hostile to the enforcement of noncompetes. Employees and employers often fail to understand whether their noncompete is enforceable under the jurisdiction chosen by the contract, and courts override choice-of-law provisions in connection with noncompetes in an unpredictable manner.

This lack of clarity has caused employers and employees to disregard state law, with noncompete agreements occurring at a steady amount in all states, regardless of a state’s relative stance on them. A federal policy on noncompetes would alleviate this uncertainty for both parties, protect employees from unfair or unenforceable noncompetes, and maintain employers’ legitimate business interests in a reasonable noncompete.

This Comment will examine the prospects of both federal legislation and a Federal Trade Commission (FTC) rule. Federal legislation is the most effective means to address the aforementioned issues and preempt state noncompete law. In the alternative, an FTC rule, although possible with a motivated FTC, faces a number of challenges for both rulemaking and preemption of state laws. Although the FTC likely has the authority to create a

beneficial noncompete rule and preempt state law, Congress should be the entity to regulate noncompetes because federal legislation is more likely than an FTC rule to survive legal challenges.

Recommended Citation

Robert McAvoy, How Can Federal Actors Compete on Noncompetes? Examining the Need for and Possibility of Federal Action on Noncompetition Agreements, 126 Dick. L. Rev. 651 (2022).
Available at: https://ideas.dickinsonlaw.psu.edu/dlr/vol126/iss2/11