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Breaking Down the FTC’s Ban on Non-Compete Clauses: What It Means for You

The Federal Trade Commission (FTC) has recently taken a landmark step by announcing a rule that would effectively ban non-compete clauses in employment contracts across the United States. This move is poised to significantly alter the landscape of the American workforce, potentially affecting millions of workers and employers alike. Let’s fill you in on what this ban entails and how it could impact your business.

Understanding Non-Compete Clauses

Prior to the FTC ruling, it was common practice for employers to include non-compete clauses in their employment contracts. In general, a non-compete clause restricts employees from working for competitors or starting a competing business for a certain period after leaving a job.

Traditionally, these clauses were intended to protect businesses from losing trade secrets and maintaining their competitive edge. However, over time, their use has expanded broadly, often limiting employees’ career mobility and bargaining power.

The FTC’s New Rule

Just last month, the FTC issued a final rule banning non-competes nationwide. The FTC’s goal is to protect the freedom of personnel to change jobs, with the hopes of increasing innovation and new business formation.

The ban is comprehensive and will cover all workers, employees and contractors, even business partners, at every level of income and seniority.

The effective date of the new FTC rule is September 4, 2024. As of this date, employers will no longer be able to enforce non-compete clauses in their contracts with any type of worker whether it be an employee, consultant, or contractor. There are a few exceptions for certain senior executives with existing non-competes and in connection with the sale of a business.

Potential Impacts on Employers

While the ban is generally seen as worker-friendly, it presents some challenges for employers. One concern is talent retention. Employers may now need to invest more in creating positive work environments and competitive compensation packages to retain employees.

A second concern is the protection of trade secrets. Businesses may need to rely more on non-disclosure agreements and other protective measures to safeguard sensitive information.

Looking Ahead

Crucially, if you have any employees or contractors subject to a non-compete, you must give each worker notice that the provision will not be enforced against them. If you need help providing this notice, please reach out for a template communication.

It is worth noting that you don’t need to remove the non-compete provision from the agreements themselves, but if your forms (i.e. template employment, contractor or consultant agreements) have a non-compete, then they should be updated for future personnel. For existing personnel, you can just provide a notice (email is sufficient).

Questions?

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The attorneys at Foundry Law Group have years of experience in helping businesses manage and protect themselves from risks and concerns. Our team follows the latest developments affecting our clients’ operations, and we apply that knowledge as we build proactive strategies for long-term protection. We are always here to help so make sure to contact our talented team now!

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