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FTC Bans NonCompetition Contracts with Employees

by | Apr 24, 2024 | business, employment

Trade Secrets, Customers, and business techniques are hard to protect from employees who take the information to new employers. They “sell” the information in return for a job or more pay. Realistic covenants against competition can have a deterrent effect even though they are expensive to enforce.

The new restriction, passed by the 3 Democrat members of the FTC in a purely partisan vote, clearly reflects President Biden’s campaign platform agenda. However, despite its claim to be “pro-employee,” the restriction could potentially devalue employees and lead to lower wages, posing another challenge for US businesses.

The new Regulation, likely to face legal challenges, bans companies from enforcing existing competition agreements with employees, except for those in senior executive roles with policy-making authority. It also prohibits companies and employees, including senior executives, from entering into new noncompetition agreements. However, it’s important to note that this Regulation does not impact businesses’ sales.

All employment agreements should be reviewed. Sections concerning trade secrets, customer information, pricing, and other business information can still be part of the agreement. However, they will be harder and more expensive to enforce. Employers also need to consider their investment in employees because it may be to the advantage of their competitors.