ASK HR: Has there been a change in the legality of non-compete agreements?

Welcome back to ASK HR! Each issue will include answers to your questions regarding a variety of human resources-related topics to help you with some of the pressing needs of your business. Our expert is fellow member, Sheila McKinley-Bell of Shoreline HR Consulting, www.shorelinehr.com . Please feel free to let us know what questions are on your mind.

Today’s question is: Has there been a change in the legality of non-compete agreements? Yes, the Federal Trade Commission (FTC) has approved a ban on non-competes. Originally scheduled to take effect in August, the current effective date is September 4, 2024. However, many of the notices indicate there is a lot of legal push back so it remains to be seen if this decision will be carried out.

A non-compete agreement is a contractual agreement between an employer and an employee in which the employee agrees not to enter into or start a similar profession or trade in competition against the employer within a specified geographic area and for a certain period of time after leaving the company. These agreements are typically used to protect the company’s trade secrets, confidential information and customer relationships. Non-compete agreements have faced criticism for their potential to stifle innovation, limit job mobility and restrict employee rights. It can be argued that these agreements can create barriers to employment and entrepreneurship, particularly for low-wage workers who may be unable to negotiate favorable terms or challenge the enforceability of the agreement in court.

Proponents of non-compete agreements assert that they are essential for protecting proprietary information, encouraging investment in employee training, and maintaining a competitive edge in the market. The argument is that, without these agreements, companies would be vulnerable to unfair competition and exploitation of their intellectual property.

In conclusion, while non-compete agreements have played a significant role in today’s business environment by offering employers a means to protect their valuable assets and maintain a competitive advantage, their enforceability and fairness is and has been the subject of debate. Although the FTC has proposed a new rule that bans non-competes, the rule does not ban other forms of protection such as non-solicitation agreements (NSA), nondisclosure agreements (NDA), confidentiality agreements (CA) or employee non-recruitment agreements. The FTC has said those provisions are still valid so long as they do not have the effect of preventing someone from getting a job.

I recommend exploring the FTC.gov website for further information. Additionally, on May 7, 2024, the FTC published a document in the Federal Register that provides a comprehensive breakdown on the new rule: https://www.federalregister.gov/documents/2024/05/07/2024-09171/non-compete-clause-rule

Sheila can be reached online at sheila@shorelinehr.com or by phone at 860-256-9881.