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On April 23, 2024, the Federal Trade Commission (FTC) issued a final rule that bans the use of noncompete clauses and agreements nationwide. This new new will go into effect 120 days after publication in the Federal Register. The new FTC ruling does not remove existing noncompete clauses for senior executives; however, it does restrict new agreements being put in place.
What does all of this mean? It means that employees can now work for multiple companies or change employers in a similar industry without fear of legal repercussion from their current employer.
What about non-senior executives with a noncompete agreement? Under the FTC’s new rule, existing noncompetes for the vast majority of workers will no longer be enforceable after the rule’s effective date.
What are noncompetes or noncompete agreements? Noncompetes are a widespread and often exploitative practice imposing contractual conditions that prevent workers from taking a new job or starting a new business. Noncompetes often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, being forced to relocate, being forced to leave the workforce altogether, or being forced to defend against expensive litigation. An estimated 30 million workers—nearly one in five Americans—are subject to a noncompete.
I'm a business owner. How do I protect my company intellectual property or custom formula? The FTC found that employers have several alternatives to noncompetes that still enable firms to protect their investments without having to enforce a noncompete. Trade secret laws and non-disclosure agreements (NDAs) both provide employers with well-established means to protect proprietary and other sensitive information. Researchers estimate that over 95% of workers with a noncompete already have an NDA. The Commission also finds that instead of using noncompetes to lock in workers, employers that wish to retain employees can compete on the merits for the worker’s labor services by improving wages and working conditions. As with all things labor law, please consult a knowledgeable human resource professional or labor law attorney.
How is the FTC going to enforce this new ruling? Once the rule is effective, market participants can report information about a suspected violation of the rule to the Bureau of Competition by emailing noncompete@ftc.gov.
You can read more about this new ruling at www.ftc.gov.
Legal Disclaimer: This post contains general information for employers and should not be relied upon as the only source of authority. Employers should seek professional legal advice for more information. This information was current at time of posting; we are not responsible for updating this or any blog post/article for subsequent changes in the law or its interpretation.
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