Federal Trade Commission Update: Noncompete agreements

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What is stated in this ruling?

On April 23, 2024, the Federal Trade Commission (FTC) published its rule banning noncompete agreements. This landmark decision effectively cancels all existing noncompete clauses, apart from those agreements made with top executives. Upcoming noncompete agreements are also prohibited; the FTC justified the ban, stating that this change will promote work mobility, new business creation, and innovation. “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” said FTC Chair Lina Khan in a statement following the vote. A noncompete clause was defined by the rule as any employment phrase that restricts, penalizes, or deters an employee from engaging in subsequent employment or business activities in the United States. This includes all forms of employee agreements and workplace policies, whether they be oral or written agreements. Historically, the legality of noncompete clauses was a matter for state and local jurisdiction. However, this federal rule will now take precedence, overriding any state laws or court decisions that offer less protection.

How can you prepare?

Update Existing and Future Employee Agreements: In light of the upcoming implementation of the new FTC rule, employers should examine their existing employment contracts and policies for potential noncompete clauses. The new rule will require these clauses to be withdrawn or amended accordingly. Employers should also ensure that new contracts do not include noncompete clauses and that they comply with the requirements of the rule.

Develop Alternative Protective Measures: Employers may want to consider alternative legal frameworks to safeguard business interests, such as trade secrets and competitive advantages. This could entail enforcing confidentiality agreements, non-disclosure agreements (NDAs), and non-solicitation agreements, provided they do not effectively become noncompete provisions under another name.

Communication and Notification: Companies must inform workers who were bound by noncompete clauses about the rescission of their agreements. It’s crucial to prepare clear communication and possibly seek legal counsel to ensure that all communications are compliant with the new regulations.

Training and Internal Policy Updates: Update training materials and internal policies to reflect the new legal landscape. HR personnel and management should receive training to become acquainted with the new regulations and understand the changes in policy.

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How we can help

Given the complexities and nuances of the rule, alongside potential legal challenges, it’s wise to consult our HR & Risk Management team. Our experts will effectively guide you and your company through the intricacies of this new law, minimizing risks associated with the transition. If you have any questions or concerns, please don’t hesitate to contact us for help. Ensure your business is protected; reach out to us for support with your HR consulting and risk management needs.

For assistance, please call us at 469-788-8888 or email us at admin@towerstreetinsurance.com.

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