Garden leave called possible workaround to FTC noncompete ban
Herrick partner, John H. Chun, was quoted in Legal Dive discussing how employers are navigating the Federal Trade Commission's ("FTC") forthcoming proposed ban on non-compete agreements.
The article highlighted that employers are often looking to apply other types of agreements, including non-disclosure and non-solicitation agreements, to protect their interests without the FTC interpreting these agreements as de facto non-competes. The FTC “has provided little guidance as to when an NDA will cross that line,” noted John.
The article explained that the FTC's proposed rule on non-competes states that "it will look at whether non-disclosure and non-solicitations are functioning as non-competes, potentially violating the ban." This risk puts the onus on companies to justify why their use of these alternative agreements don't amount to “de facto” non-competes, said John.
The article noted that companies that are concerned their use of non-disclosure and non-solicitations violate the FTC's ban have alternate options. One option is a negotiated cooling-off period, which is generally referred to as "garden leave." The typical cooling off period is six months, during which departing employees are paid not to work for a competitor, said Chun.