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What happens if the FTC bans noncompete agreements?

On Behalf of | Jan 9, 2023 | Business Law

Businesses need to adopt policies that comply with federal employment laws and protect them from the potential of an expensive employment lawsuit. Unfortunately, even the systems that employers use to protect themselves sometimes become outdated as the government continually changes its approach to employment law matters.

Recently, the Federal Trade Commission (FTC) released a statement to the public that it wanted to pursue a federal ban on non-compete agreements. Non-compete agreements are crucial contract inclusions for many businesses that worry about employees potentially misusing the resources or relationships that they gain access to through an offer of employment.

What might it mean for your company if the FTC follows through and bans non-compete agreements?

You may need to rework your contracts

The most obvious consequence of a ban on non-compete agreements would be the obligation for a business to rework their employment contracts to remove non-compete agreements from the documents. In fact, some businesses may benefit from removing non-compete agreements before the ban ever takes effect.

Some companies, especially those that operate in every state and therefore in some places that already refuse to enforce non-compete agreements, could better protect themselves by altering their contracts to eliminate controversial inclusions, like non-compete agreements.

Protecting your company without a non-compete agreement

There are other restrictive covenants that can replace non-compete agreements and significantly reduce the likelihood of a former employee unfairly competing with your business later.

For example, nondisclosure agreements could prevent your workers from sharing information obtained at your company with others. Your agreement could prohibit both the sharing of information in a public forum, such as on social media, as well as with coworkers at another company or employees at a business the worker starts themselves.

Non-solicitation agreements can also prevent people from trying to hire their previous co-workers or convince clients and customers from your company to leave to do business with a different organization.

Beyond making changes to your contracts, you may want to revisit some of the ways that you structure the workflow at your company. You can potentially protect your business from unfair competition by changing how much information any one employee has access to during the work day. Breaking up a recipe into multiple steps and preventing people from knowing the other stages in the process is one means of reducing the likelihood of someone misusing trade secrets and proprietary information.

Talking with a lawyer about your business’s employment exposure can help you appropriately respond to any challenges, including concerns about unfair competition involving a former employee.