FTC Noncompete Ban: What this Means for Employers

In a groundbreaking move, the Federal Trade Commission (FTC) has proposed a rule to ban noncompete clauses in employment contracts across the United States. This proposal has been highly controversial with businesses that have relied on noncompete agreements to protect proprietary information and retain top talent. With the final rule going into effect September 4, 2024 , it’s important for employers and employees to be educated about the potential impacts of this ban. Here are the most important things to know about the FTC’s noncompete ban and how you can prepare in advance of changes.

Understanding Noncompete Clauses

Noncompete clauses are contractual agreements that prevent employees from joining competitors or starting similar businesses for a certain period after leaving a company. These clauses are designed to safeguard trade secrets, proprietary information, and investments made in training employees. While they offer significant protections for employers, they also limit employees’ freedom to pursue new opportunities, and this has been a point of contention for labor advocates and regulatory bodies.

The FTC’s Proposed Ban

The FTC’s proposal to ban noncompete agreements is part of a broader initiative to promote fair competition and empower workers. The agency argues that noncompete clauses stifle innovation, restrict worker mobility, and reduce wages. As it stands, the new rule will not only prohibit new noncompete agreements, but also invalidate existing ones. There will be limited exceptions for certain business sales and franchise arrangements.

Preparing for the Future

To navigate this significant shift, employers should take proactive steps:

  1. Audit Employment Contracts: Employers will need to revisit and revise employment contracts to comply with the new regulations. This includes identifying and removing noncompete clauses from current contracts and ensuring future agreements do not include these provisions. Seek legal counsel to ensure all revisions are compliant with the new rule.
  2. Enhance Confidentiality Measures: Without noncompete clauses, employers will need to explore alternative methods to protect their interests and safeguard proprietary information. Confidentiality agreements, nondisclosure agreements (NDAs), and nonsolicitation agreements can offer some level of protection for trade secrets and client relationships along with robust internal protocols to protect sensitive data and trade secrets.
  3. Minimize Impact on Business Sales and Mergers: The rule includes exceptions for noncompete clauses related to the sale of a business or franchise arrangements. Employers involved in mergers, acquisitions, or business sales must understand these exceptions and structure details accordingly.
  4. Invest in Employee Development and Retention Strategies: Under the new rules, employees will have greater freedom to explore opportunities with competitors. Employers will need to invest in creating a positive and growth-oriented work environment, competitive compensation packages, and career development opportunities to retain top talent. Offering professional development opportunities and clear career progression paths can help retain employees and reduce the likelihood of them leaving for competitors.
  5. Ensure Legal Compliance and Risk Management: Ensuring compliance with the new FTC rule will be crucial. Employers will need to work closely with legal experts to navigate the transition, minimize risks, and avoid potential litigation. Regularly consulting with your team of employment attorneys at Walcheske & Luzi will ensure that your business remains compliant and prepared for any legal challenges.

It’s important to stay informed about the latest developments regarding the FTC’s rule and its possible implementation. For personalized legal advice and support in navigating the FTC Noncompete ban, contact Walcheske & Luzi, LLC today.