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The impact of the new federal ban on non-compete agreements

On Behalf of | May 14, 2024 | Uncategorized

Both federal law ends federal policies govern employment relationships. Businesses typically have an obligation to comply with all statutes and rules established by entities such as the Federal Trade Commission (FTC).

Labor laws and federal rules govern minimum wage, overtime requirements and even the terms that employers can include in their contracts with workers. Companies that do not properly adhere to all relevant regulations may find that they face accusations of violating worker rights that lead to lawsuits or fines. Other times, failure to adhere to modern rules could leave companies unprotected because they cannot enforce their contracts.

A new final rule implemented by the FTC in April 2024 effectively prohibits non-compete agreements in employment contracts. Businesses that have utilized non-compete agreements in their employment contracts may need to understand the implications of the non-compete ban.

What does the new FTC final rule about non-compete agreements mean for employment contracts?

Non-compete agreements are no longer enforceable

The ban on non-compete agreements means that companies can no longer ask the courts to impose financial penalties on workers who take jobs with competitors or start competing businesses. They cannot rely on non-compete agreements to justify asking the courts to intervene in a former worker’s employment either.

Unlike some policy changes, the new final rule for non-compete agreements applies to existing contracts signed with employees, not just new contracts. Many companies may find they are vulnerable if they previously relied on non-compete agreements to protect their trade secrets.

Many organizations may decide to renegotiate contracts with employees to address the exposure generated by this new final rule. Companies may add other restrictive covenants, such as nondisclosure agreements, to their employment contracts as a way of protecting against inappropriate conduct from employees when they leave the organization.

Workers negotiating new and contracts with their employers typically have the right to receive something of valuable consideration if they have to make concessions, such as signing new restrictive covenants, especially if they simply retain the same position they already had. Companies may need to factor that into how they approach resolving the exposure generated by this new final rule.

Organizations that proactively address changing standards for worker contracts can optimize their protection despite being unable to enforce non-complete agreements.