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What You Need to Know About the New Noncompete Agreement Ban

On April 23, 2024, The U.S. Federal Trade Commission (FTC) approved a final rule banning most new noncompete clauses in employment contracts. Under the rule, all existing noncompete agreements will be unenforceable, except for those covering senior executives. Employers will also be required to provide notice to current and former employees that their noncompete clauses are no longer in effect.

The rule will take effect 120 days after its publication in the Federal Register, though legal challenges could delay it or prevent it from taking effect. The U.S. Chamber of Commerce has already said that it intends to sue the FTC to block the rule.

What are the Details?

The rule defines “noncompete clause” to mean a contractual term that blocks a worker from working for a competing employer, or starting a competing business, within a certain geographic area and period of time after the worker’s employment ends. It also applies in some cases to agreements requiring employees to pay back the employer for training costs.

What Should Organizations Do Now?

It’s likely that the 120-day timeline will be delayed by legal challenges. However, it’s a good idea to start planning now.

Review your current policies and practices regarding noncompete agreements with legal counsel, and discuss with them whether nondisclosure and other agreements can still be enforced.

Identify which employees are considered “senior executives.” According to the rule, workers earning more than $151,164 annually and in a “policymaking position” are exceptions to the rule. If you already have a noncompete that you want to maintain, you might consider increasing some employees’ pay so they fall into that category and noncompete agreements are enforceable.

Make sure you have ways to guard trade secrets and proprietary or sensitive information. You might limit employee access to information based on their roles and needs. Employers can also shut down employees’ devices when they leave the company and/or use monitoring software to track where information is being shared. Having clear offboarding policies can make for a smooth transition and better protect the organization.

Retention bonuses can be an alternative to a noncompete agreement, encouraging longevity with your employees and keeping them with you, not your competitors. Having clear no solicitation and company intellectual policies can help deter exiting employees from taking clients and information with them. The new ruling does not ban these policies unless they’re as restrictive as a typical noncompete.

Where Can I Learn More?

These are a few SHRM articles we found useful:

If you have questions about the ban or would like help determining your options, reach out to Purple Ink!

Emily Miller
Emily Miller
Emily is Purple Ink’s Director of Marketing. She enjoys being able to exercise both her creative side and her analytical side, and as a Learner, loves helping to create new services and tactics and discovering the best ways to share them with the community.

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