Businesses use employment contracts as one way of mitigating operational liability. The terms included in a contract help protect a company from unfair competition and damaging employee conduct. It has become commonplace for employment contracts to include terms that regulate certain worker behavior outside of their work hours.
Social media policies are now standard in many employment contracts. Businesses also use restrictive covenants as a way of preventing unfair competition later. Non-compete agreements have long been a popular tool for companies trying to protect their competitive advantage in a cut-throat marketplace.
How can businesses protect themselves now that there is a federal ban on non-compete agreements?
What the ban means for employers
The Federal Trade Commission (FTC) did provide advance warning of its intention to ban non-compete agreements. Businesses and members of the public had a year to provide feedback before the vote and announcement of the final rule banning non-compete agreements.
As of April 2024, non-compete agreements are no longer valid and enforceable employment contract inclusions. This sweeping ban applies to not just future agreements that companies may eventually sign with workers but also current contracts already in place. Employment contracts negotiated years before the ban may no longer protect the company from a worker starting a competing business or pursuing a job with a direct competitor.
How can companies appropriately pivot?
Being ready to change with little warning is crucial for a company’s success in a fast-paced economy. The new FTC rule may require that employers revisit employment contracts with their existing workers. They may also need to overhaul the template that they begin with when establishing a new employment contract.
Replacing unenforceable non-compete agreements with other contract inclusions, like non-solicitation clauses or non-disclosure agreements, can be a viable solution. Companies renegotiating with existing employees also have to offer something of valuable consideration in exchange for the worker making those concessions. When hiring new workers, the job opportunity is typically the consideration that they receive.
Organizations may need help adapting their employment contracts to reflect this significant change in employment policy. Tracking changes in the law and adapting employment practices promptly can help businesses avoid regulatory non-compliance and/or unnecessary exposure.
