UncategorizedApril 25, 20240

FTC Turns up the Heat with Ban on Noncompete

Employers may start feeling like their competitive edge is getting dull after the FTC approved a ban on nearly all noncompete clauses in employee agreements. The center of this competition: competing interests between employers’ desire to protect trade secrets while shielding themselves from unfair competition and employees’ desire to avail themselves to new opportunities and higher compensation. In addition to prohibiting employers from instituting any new noncompete clauses in employment agreements, the new rule which the U.S. Federal Trade Commission approved on April 23, 2024 renders nearly all existing noncompete agreements unenforceable. The only exception in this provision is for noncompete agreements between employers and “senior executives” which is defined as an employee whose annual earnings exceed $151,164 and whose role is that of a “policy-making position.”

This ruling will go into effect 120 days after it is published in the Federal Register. However, many are anticipating legal challenges to this ruling, which could likely delay the effective date. Those who are in favor of the FTC ban on noncompete clauses argue that noncompete clauses deprive employees from opportunities to advance their career, increase earnings, have better working conditions, and move between jobs freely. Those who oppose the FTC ban on noncompete clauses argue that employers will lose protection of their intellectual property, creating unfair competition. SHRM has publicly opposed the ban on noncompete clauses, asking for the FTC to look at alternative solutions such as prohibiting noncomplete clauses for specific types of employees or industries and establishing a minimum salary threshold.

So what does this mean for employers right now? Well… maybe nothing or maybe a very big something. The best position an employer can be in is a prepared one. Employers can look at other strategies for protecting their intellectual property such as nondisclosure and confidentiality agreements that comply with existing local, state, and federal laws. Additionally, employers may want to consider whether it is a wise use of resources to actively engage in litigation over current or past noncompete clause violations. Another interesting aspect of this ruling that we may see unfold is employer-paid training and tuition. Some noncompete clauses stipulate that an employee must remain with an organization for a specific length of time after receiving education or training paid for by the employer. It is possible that employers will no longer be able to recuperate money from former employees who left after receiving training at the organization’s expense. There may still be more questions than clarity around this issue, but one thing we can certainly expect to do right now is sit back and watch this legislation bounce through the judicial system like a pinball machine!

Leave a Reply

Your email address will not be published. Required fields are marked *