While it hasn’t gone into effect yet, non competes will soon be banned through a Federal Trade Commission (FTC) ruling. The ruling was issued on April 23, 2024, and the ban will take effect on September 4, 2024. Whether you use the non-compete New York allows or run a company in Alabama, you’ll be expected to adjust your company’s policies and employee onboarding for the upcoming FTC noncompete ban.
What Is a Non-Compete Agreement?
What is a non compete agreement? How do you know if your workplace currently uses non competes?
A non-compete agreement is often a standalone contract that prevents an employee from working at a company in the same industry. It may also forbid the worker from using their on-the-job training or patent-related knowledge at a new place of employment.
While non competes typically look like a formal document in an employee handbook, a non-compete clause can also be included within another document. Some non-solicit and non-recruit contracts have clauses that explicitly or implicitly end up working as non-compete agreements.
No matter what form the non-compete comes in, it has the same general purpose. Non-compete agreements are designed to prevent employees from working in the same industry if they leave their current employer. For instance, a non-compete agreement may prevent biotech scientists from working in the same subfield of biotechnology for three years after their employment ends.
The non-compete New York residents receive may be different from the non-compete rules you’ll find in Texas, Washington, or other states. The following list includes some examples of what non-compete rules were like in different states prior to the FTC noncompete ban.
Texas: As long as non competes meet all the state’s legal requirements, there are no major limitations on which employees can get them in Texas.
Washington: In Washington, employers can’t give a worker a non-compete agreement unless they make more than $120,559.99.
New York: As recently as February 2024, the governor of New York vetoed a ban on the non compete New York businesses could offer. The governor has voiced support for a ban on non-competes as long as they are restricted to only high earners.
California: Except in very narrow circumstances, non-compete contracts are already illegal in California.
Virginia: In Virginia, non-compete agreements are currently banned unless the employee earns over $73,320 per year.
Florida: As long as they meet the state’s rules and requirements, non-compete agreements are fully legal and enforceable.
Whether you are researching the non compete New York businesses can use or the non-compete laws in Virginia, every state will soon be dealing with the FTC noncompete ban. The FTC rules are the same for every state, so businesses will have to get rid of non-compete contracts for the majority of their employees.
Will Non Competes Be Enforceable Now?
As a general rule, non-competes won’t be enforceable because of the ban. Unless a few narrow exceptions are met, non-compete agreements automatically become unenforceable on September 4, 2024.
For general employees, non-competes aren’t enforceable after the ban starts. Certain people, like franchisees, owners who sell their businesses, and non-profit employees, are excluded from all or part of the ban’s provisions.
Senior executives are dealt with in a unique way. First, someone must earn $151,164 and be involved in making company policies to count as a senior executive. If they meet these requirements, senior executives may have to continue following their non-compete agreements.
Additionally, you can continue to make new non-compete agreements with senior executives until the day the ban goes into effect. After September 4, 2024, employers can no longer make non-compete agreements with senior executives. However, any previous agreements will remain enforceable.
8 Top Questions You Should Consider After the Non-Compete Ban Passes
Whether you run a small business or a major corporation, you should take some time to prepare for the upcoming FTC noncompete ban in advance. There are notification obligations and a few additional requirements involved in the ban, so you need to plan proactively.
1. Do You Have Any Current or Past Non-Compete Agreements in Effect?
The first question is the most important one for your business to consider. Before you plan for how you will deal with non competes, you need to see if you are currently using this type of agreement. You should also check your non-solicit, non-recruit, and non-disclosure agreements to see if they incorporate any non-compete clauses or concepts.
2. What Are Your Justifications for Having a Non-Compete Agreement?
If you have a non-compete agreement, you should spend some time figuring out why. For example, some employers may use non-competes to stop their workers from obtaining new jobs. Now that there is an FTC noncompete ban, these employers will need to find an alternative way to retain their workers.
Understanding why you have a non-compete contract matters because it’ll help you figure out alternatives. There may be different contracts, employee benefits, or bonuses you can use instead of requiring a non-compete contract.
3. Will a Non-Disclosure Agreement or Non-Solicit Agreement Be Sufficient?
Sometimes, you can use alternative contracts to achieve the same goals. For instance, an NDA could help you keep proprietary information private. Meanwhile, a non-solicit agreement can prevent former employees from taking your customers with them when they leave.
To avoid accidentally violating the non-compete ban, you should ask your employment lawyer or HR department to review any NDAs or non-solicit agreements you create. If the clauses and definitions are overly broad, they could lead to potential conflicts with the new non-compete rules.
4. Can You Use Retention Bonuses Instead?
One of the reasons the FTC is getting rid of non-competes is because so many organizations used non-compete agreements as a way to keep employees from quitting. The FTC found that this reduced competition, which led to lower wages, fewer startups, and less innovation.
If your company has used non-compete contracts as a way to retain workers, there are alternative options you can use. In addition to considering 401(k)s and employee benefits, you may want to offer retention bonuses. These bonuses typically give employees around 20 to 30% of their annual wages if they remain at their job for a set amount of time.
5. Do Any of Your Other Employment Agreements Violate Non-Compete Agreements?
You should have your HR department carefully review all of your employment agreements to make sure they don’t include non-compete clauses. Sometimes, non-compete clauses are included in other contracts and documents, so you should ensure nothing could be misinterpreted as a non-compete clause.
6. Which Current and Past Employees Are Impacted?
As an employer, you are legally obligated to notify employees about the FTC noncompete ban. Former employees can still be bound by non-compete agreements for years, so you need to review all of your current and past employees to see who this ruling applies to.
7. How Will You Notify Employees About the Non-Compete Changes?
Next, you need to consider how you will notify employees about the non-compete update. The FTC has been incredibly lenient about allowing different notification options, so you can use email, mail, in-person, or text. However, texting isn’t ideal because texts can be easily overlooked.
Once you figure out how you want to notify your workers, you should prepare your list of addresses. Review your employee records to make sure you have the correct email address or physical address on file for all of the current and past workers that you need to notify. Then, send your notifications before the ban begins.
8. Do You Need to Adjust Your Employee Handbook and Onboarding Materials?
At many companies, employee handbooks cover employment contracts and workplace expectations. Because of this, you need to have your HR department review your employee handbook and onboarding materials. You want to make sure that you don’t inadvertently discuss a non-compete contract or give employees the impression that a non-compete is in effect.
How Does the FTC Noncompete Ban Affect Different Areas?
This ban may affect some states more than others. In states that already have non-compete bans, this ban will have little impact. Businesses in other states may have to carry out significant overhauls of their employment contracts. Additionally, businesses may need to change the way they approach employee retention.
While adjustment needs may change between one state and another, the federal ban will be the same in every state. If you’re running a national business, you’ll have an easier time standardizing your employment contracts.
Learn More About Non-Compete Rules
Whether you are researching the non-compete New York requires or the non-compete rules for Oregon, each state has different rules. Starting in September, the FTC noncompete ban will apply to every business in the country. To avoid running afoul of this new ban, it’s important to research non competes and determine your company’s strategy beforehand. If you are working on your company’s strategy for handling the non-compete ban, we can help. Learn more by talking to our small business HR and payroll experts today.