Overview:
With the implementation of the noncompete ban, small businesses need to update their employee agreement contracts. Following the ban, all existing noncompete provisions will be unenforceable following the rule’s effective date, which is September 4, 2024. Additionally, employers must provide notice to employees who have existing noncompete agreements that the noncompetes are no longer enforceable. Failing to comply will be deemed a violation of Section 5 of the FTC Act, under which the FTC has authority to bring charges against the business.
Businesses need to:
- Review their employee agreements to identify which agreements have noncompete provisions.
- Prepare notices to inform employees that their noncompete provisions are no longer enforceable.
- Update employee agreement templates to remove noncompete provisions and add provisions for protecting proprietary information, including non-disclosure agreements, intellectual property protections, and non-solicitation agreements.
Businesses need to be diligent in customizing the base templates of employee agreements to include updated and necessary provisions for protecting proprietary information and maintaining competitive advantages. They may also need to rely more on other restrictive covenants like non-disclosure agreements (NDAs) in addition to relying on intellectual property protections and trade secret laws to safeguard their interests. Because NDAs typically remain in force after employment ends, businesses may want to ensure that their NDAs are thorough and complete. Small businesses may also want to consider the use of non-solicitation agreements in employee agreements, which prevent employees from soliciting a business’s customers for their own benefit.
To sum it up:
The FTC’s final rule bans noncompete clauses nationwide to promote competition and freedom for workers, declaring noncompete clauses an unfair method of competition in violation of Section 5 of the FTC Act. The rule, effective 120 days after publication in the Federal Register (September 4, 2024), aims to boost innovation, increase new startup formation by $8,500 annually, raise worker earnings by an average of $524 per year, and lower healthcare costs by up to $194 billion over the next decade. Existing noncompetes will be void for most workers, though senior executives, representing less than 0.75% of workers, are exempt.
For more information check out our services or contact us today.
(This is not intended as legal advice. Contact a lawyer for assistance in your particular situation.)