What Does the FTC's Ban on Non-Competes Mean for Your Business?

       Yesterday, the FTC announced the issuance of a final rule banning non-compete agreements.  Non-compete agreements are contracts between employers and employees that restrict the employee’s ability to work for a competitor or start a similar businesses for a certain period after leaving the employer. Historically, these agreements have been common across various industries as a means to protect trade secrets, client relationships, and investments in employee training. 

     The FTC's ban reflects the administration’s growing concern over the potential misuse and abuse of non-compete agreements, particularly concerning their impact on employee mobility and labor market competition. The commission views these agreements as inhibiting economic growth, innovation, and job mobility, ultimately harming both workers and consumers.  According to the FTC, this non-compete ban will result in the creation of more than 8,500 new businesses each year, and in higher earnings for workers at the rate of about $524 per year more for each employee.  Whether these results materialize remains to be seen, but the immediate impact of this final rule has been confusion and concern among business owners. 

 Here’s what you need to know:

The FTC’s new rule divides workers into two categories: “regular workers” (in other words, not “senior executives”), and “senior executives.”  Senior executives are employees in policymaking positions who earn more than $151,164 per year.  

Regular Workers- Immediately upon the effective date of the new rule, any existing non-competes between employers and regular workers are null and void. Employers will be required to notify regular workers who signed non-competes that their non-competes are no longer enforceable. 

Senior executives- Although existing non-competes between employers and senior executives will remain enforceable after the effective date of the new rule, no non-compete entered into by a senior executive after the effective date will be enforceable.   

            If you are an employer who uses non-compete agreements, you will want to speak with your lawyer about what compliance will look like for your business.

 How can I protect my business now?

            Employers and business owners still have tools for protecting their customer relationships and intellectual property.  The FTC’s ban on non-competes does not ban non-solicitation agreements (which prevent a departing employee from soliciting customers and/or employees of the former employer) or Non-Disclosure Agreements (NDAs), which prohibit a departing employee from using the employer’s confidential information.  If your current employee contracts include only a non-compete and not non-solicitation or NDA provisions, you may want to work with legal counsel on a plan to revise your agreements and ensure enforceability with new and existing employees. 

            If you are an employer or business owner with questions about how the FTC’s ban on non-competes will affect your company, please give attorney Liz Vennum a call at (704) 375-8488.  She would be happy to speak with you and develop a strategy for keeping your business competitive in light of these new regulations.