Is The Transfer Portal Opening For Employees With Noncompete Agreements?
The Federal Trade Commission (FTC) announced a new rule on April 23, 2024 banning non-compete agreements. The FTC’s goal with the ban is to increase new business creation, to increase worker wages, and to promote the freedom of workers to change jobs more freely.
The rule will go into effect 120 days after the final rule is published in the Federal Register, which is expected to happen this week yet.
The new rule both bans new noncompetes for all employees after the effective date of the rule and invalidates existing noncompetes for all employees but senior executives. A ‘senior executive’ is defined as an employee in a policy-making position earning over $151,164 annually.
The final rule also could invalidate nonsolicitation agreements if the nonsolicit is so broad that it prevents a worker from seeking or accepting employment from a different employer. It also could implicate nondisclosure agreements that present the same issues for employers. Finally, agreements requiring employees to repay training costs that are not reasonably related to the costs of the training received are also under fire with the new rule.
As an alternative to noncompetes, the FTC suggests that employers use trade secret laws and non-disclosure agreements to protect their interests. The usefulness of this will be uneven as trade secret laws vary by state. For example, some states include a customer list as a trade secret while others do not.
Even though the FTC has passed this new rule, you can be certain that there will be lawsuits challenging the new rule. In fact, the US Chamber of Commerce has already announced their intent to file a suit to challenge the rule.
For now, employers should prepare for the possibility that the new rule goes into effect, while not needing to take immediate action. Employers should still use the time to critically analyze their use of the whole range of restrictive covenants (noncompetes and nonsolicits) and at the very least make plans on what steps to take should the rule go into effect while keeping an eye on the inevitable lawsuits.
For more information on alternatives to noncompetes (and possibly nonsolicits) including trade secret laws and non-disclosure agreements to protect your interests, contact myHRcounsel at info@myHRcounsel.com for Answers You Can Rely On!