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How employers can handle the federal non-compete ban

On Behalf of | May 24, 2024 | Employment Law For Employers |

Employers need to carefully abide by all federal regulations and state laws regarding the rights of employees. For example, businesses need to ensure that they pay workers at least minimum wage and provide overtime pay to hourly workers as appropriate. They need to comply with workplace safety regulations and avoid discriminatory treatment of workers.

Companies can face enforcement actions brought by regulatory agencies and also lawsuits brought by unhappy employees in some cases if they don’t consistently enforce their policies. Employment contracts have long been a way for organizations to limit the risk that comes with hiring new staff members or promoting workers to positions where they may access the company’s trade secrets.

A recent rule change may force some businesses to re-evaluate the terms of their employment contracts. With the limited exception of senior executives who have already executed a non-compete agreement, these agreements are no longer enforceable inclusions in employment contracts, including for independent contractors.

How companies can replace non-compete agreements

The Federal Trade Commission (FTC) recently voted to enact a final rule prohibiting non-compete agreements that prevent employees from engaging in economic activity after leaving a job. Previously, companies could prevent employees from starting competing businesses or going to work for direct competitors after leaving the organization with the right contractual terms. That is no longer an option.  Employers must also notify any employees impacted by the rule change.

However, companies can still use their employment contracts to protect against unfair competition by protecting their trade secrets. Non-disclosure agreements and confidentiality agreements are still a viable means of protecting non-public information about a company.  Organizations can also use non-solicitation agreements to prevent one worker from luring other staff members away or poaching clients from the company.  For companies that have existing employment contracts that rely on non-compete agreements, it may be necessary to re-evaluate the company contracts and have workers sign new documents.

Ensuring that employment contracts are compliant with the law and enforceable is crucial for an organization’s protection. Major changes in the law, like a federal ban on non-compete agreements, may require action on the part of affected businesses.