Non-Compete Agreements will be invalid. What can employers do?
The Federal Trade Commission (FTC) voted to make non-compete agreements invalid on April 23, 2024. As the new regulations are slated to take effect in late August, employers must now reassess their workforce tactics. Here are some ways to navigate these changes in non-compete agreements.
I want to talk to you about something important that happened recently. On April 23, 2024, the Federal Trade Commission (FTC) made a decision that affects many workers across the country. They voted 3-2 to put a stop to most non-compete agreements between employers and their workers.
Understanding Non-Complete Agreements
Now, let's break this down in simple terms. A non-compete agreement is basically a rule that says if you work for a company and then leave, you can't go work for a competitor for a certain amount of time. It's like saying you can't take your skills and work for someone else in the same field immediately. For example, a non-compete agreement might prevent an employee from working for a competing company within the same country for a period of one year after leaving their current job.
President Biden had already said he wanted to stop these kinds of agreements back in July 2021. He wanted to make sure that workers have the freedom to move between jobs without being held back by these agreements.
Key Points of the Rule
Now, what does this decision mean for everyone?
Well, first off, it won't happen right away. It'll take about 120 days after it's officially published for the rule to kick in. That should be around late August 2024.
Here's what the rule says:
- No more new non-compete agreements after the rule takes effect.
- Existing agreements won't be valid anymore, except for certain top-level executives who earn a lot of money, like for high-level executives earning over $151,164 annually. and have a big role in decision-making.
- Employers have to tell their current and former workers that these agreements can't be enforced anymore.
The Federal Trade Commission (FTC) Non-Compete Rules' Exceptions
But wait, there are some exceptions. For example, if a company is sold, the rule won't apply to the new owners. Also, it won't affect agreements between franchise owners and the companies they're part of.
Now, you might wonder, what about other kinds of agreements that stop workers from reaching out to old clients or customers after they leave? Well, those are called non-solicitation agreements. They're a bit different, but if they stop workers from finding new jobs or starting their own businesses, they might still be banned.
Will the Non-Compete Agreements new rules kick in successfully?
But wait, there are challenges ahead. The U.S. Chamber of Commerce and others have already filed a lawsuit against the decision, so there might be some hurdles to overcome.
While we wait to see what happens, the trend against non-compete agreements is clear. More states and even the Biden administration are pushing for limits on these agreements, suggesting alternative ways to protect workers' rights.
Why does this matter? Non-compete agreements can hold down wages and stifle innovation. They can make it harder for workers to find better opportunities or for doctors to practice medicine freely. That's why the FTC and the White House are working together to support workers' rights.
What can employers do now that Non-Compete Agreements are invalid.
So, what should employers do if they can't use non-compete agreements anymore? Some states already have rules against them, and businesses there have found other ways to protect their interests.
As we navigate these changes, it's important to consider how businesses can adapt.
Here are some simple steps employers can take to protect their interests:
- Confidentiality agreements: Consult with legal experts to ensure that your confidentiality agreements are legally sound and adequately protect your company's interests. They can provide guidance on drafting enforceable agreements that comply with state laws and industry standards. Additionally, seek their advice on how to incorporate confidentiality clauses into employment contracts and other relevant documents.
- Non-solicitation agreements: Engage legal counsel to assist in drafting non-solicitation agreements tailored to your company's needs and compliant with applicable laws. They can advise on the scope of the agreements, permissible restrictions, and enforcement mechanisms. By seeking legal counsel, you can ensure that your non-solicitation agreements effectively protect your client relationships and business interests.
- Cybersecurity measures: Work with IT professionals to implement strong cybersecurity measures that prevent data breaches and unauthorized access to sensitive information. Ensure that your cybersecurity policies and procedures align with legal requirements and industry standards. Additionally, develop incident response plans and legal obligations in the event of a data breach.
- Employee onboarding and exit procedures: Develop comprehensive onboarding and exit procedures that address confidentiality and data security concerns. Provide clear guidance to employees on their confidentiality obligations and the importance of protecting company secrets. Incorporate legal requirements into these processes and establish best practices for enforcing confidentiality obligations.
- Training and education: Design training programs that highlight legal obligations, compliance standards, and potential consequences for non-compliance. HR professionals can lead these sessions, focusing on data security and confidentiality requirements. Address legal questions and concerns raised during training sessions to ensure that employees have a clear understanding of their responsibilities.
- Regular compliance audits: Conduct periodic compliance audits to assess adherence to data security and confidentiality requirements. Evaluate policies, procedures, and practices to identify areas of non-compliance or vulnerability. Implement corrective actions to enhance your company's data security posture based on audit findings.
Additionally, it's advisable for employers to seek guidance from a labor and employment attorney to navigate these matters effectively. Here are a few recommended attorneys to work with, including their contact information and the firms they work with, for 10 main cities:
- Quarles & Brady
Meet Sandy McDonough, partner and co-chair at Quarles & Brady. With extensive experience in employment law, Sandy counsels clients on a wide range of employment matters. From private corporations to public sector entities like the University of California and California State University, Sandy offers strategic guidance and expert advice. Known for her successful track record in obtaining dismissals, securing favorable settlements, and representing clients in appellate courts and arbitration proceedings, Sandy is a trusted ally in navigating the complexities of employment law.
Sandy McDonough
(619) 744-3641
Email
Meet Sean Scullen, a pragmatic, collaborative, and results-oriented employment counsel at Quarles & Brady. With a wealth of experience, Sean specializes in advising on wage and hour issues and building strong defenses against class actions. Working closely with employers across various industries, including higher education, healthcare, manufacturing, and financial services, Sean focuses on employment law counseling and litigation prevention. Known for his practical approach and keen sense of common sense, Sean is dedicated to providing clear recommendations aligned with his clients' business objectives. As the national co-chair of the Quarles Labor & Employment Practice Group, Sean has successfully represented both private and public sector employers in a wide range of labor and employment matters, including litigation defense, collective bargaining, and compliance with federal and state laws. With a track record of success in resolving complex disputes and mitigating litigation risks, Sean is a trusted advisor committed to achieving favorable outcomes for his clients.
Sean Scullen
(414) 277-5421
Email
2. Perkins Coie
Ann Marie Painter is an accomplished employment attorney specializing in litigation, internal investigations, and counseling. With a focus on defending employers against various complaints, including discrimination, harassment, and wage-and-hour violations, she also advises on noncompete agreements and trade secret theft cases. Ann Marie's proactive approach includes leading internal investigations and providing strategic counsel on employment agreements and policies. Recognized for her expertise, she is a frequent speaker and contributor to employment law publications, actively engaging in professional associations.
Ann Marie Painter
Partner, Dallas
D +1.214.965.7715
EMAIL
LINKEDIN
3. Law Offices of Jonathan A. Goldstein, Esq
A more affordable option with a smaller firm - Introducing the Law Offices of Jonathan A. Goldstein, Esq., a distinguished legal practice specializing in labor and employment law. With two strategically located offices in Beverly Hills and Indio, they offer comprehensive legal services to clients across Southern California. Their team of seasoned professionals provides expert guidance in areas such as employment counseling and litigation prevention, helping employers navigate the complexities of labor law with ease.
Law Offices of Jonathan A. Goldstein, Esq.
We are in contact with 200 law firms, please write in to joyce@eachhire.com if you'd like our help getting a trusted attorney.
By taking these proactive measures, employers can adapt to the changes brought by the ban on non-compete agreements while still protecting their business interests.
This decision by the FTC is a big deal. It's part of a trend where more and more states are limiting non-compete agreements, especially for lower-wage workers. But it's also facing some challenges. Some groups are already taking legal action against it, saying it goes too far.
In the end, this decision will likely be decided by the Supreme Court. Until then, we'll have to wait and see what happens. But for now, it's a step toward giving workers more freedom to pursue better opportunities without being held back by restrictive agreements.
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