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The FTC has announced a rule banning noncompete agreements

On Behalf of | May 1, 2024 | Business-Employment

The Federal Trade Commission (FTC) helps to regulate economic activity across the country. Policy guidelines established by the FTC can have a major impact on day-to-day business operations. Sometimes, the FTC makes aggressive policy changes to correct for certain negative economic trends. That is effectively what happened with noncompete agreements.

For decades, noncompete agreements have been increasingly common requirements when people take new jobs. The FTC estimates that roughly 30 million professionals or one in five working adults in the United States are subject to a noncompete agreement. Last year, the FTC announced the possibility of a vote to ban most employment-related noncompete agreements. The goal, in theory, was to promote entrepreneurship and career development among those forced to remain stagnant by contracts.

After allowing for public feedback, the FTC voted in late April and established a new final rule. Most employers can no longer require that workers sign noncompete agreements to accept jobs and may be unable to enforce noncompete agreements after a worker leaves their job.

What impact will this new final rule banning noncompete agreements potentially have on employers?

Companies must use alternate strategies for protection

The ban on noncompete agreements is not a prohibition on the protection of trade secrets that give a company a competitive edge. The ban might lead to temporary exposure for some businesses, but they can quickly move to address this change in policy.

There are other ways for organizations to protect trade secrets and information about the company from misuse other than demanding that all new hires sign noncompete agreements. Nondisclosure agreements and company policies that limit access to vital trade secrets are both perfectly legal ways of preventing future employee misconduct.

Organizations that currently rely on noncompete agreements may need to renegotiate new contracts with their employees including different restrictive covenants or other protective clauses. They may need to adjust work practices to better protect trade secrets. Other organizations may need to rework their existing boilerplate contracts to eliminate any noncompete provisions.

Organizations that monitor changes to employment and business laws can comply with regulations while simultaneously protecting the business. Eliminating noncompete agreements in light of the new FTC rule may help companies establish effective and enforceable contracts featuring alternative mechanisms that safeguard the interests of any particular operation.