Making Business Happen

Can employers still enforce noncompete agreements?

On Behalf of | Oct 30, 2024 | Business Law

Non-compete agreements have become more controversial in recent years. With an ever-increasing number of employers relying on these restrictive covenants when hiring workers, regulatory agencies and workers have begun to express concerns about the restrictions the agreements place on workers and prospective entrepreneurs.

Companies typically view non-compete agreements as crucial for their protection, especially when hiring workers who may have access to trade secrets, such as customer lists and vendor information. Workers and advocacy groups have begun pushing back on non-compete agreements by trying to limit or prohibit their use.

Most recently, the Federal Trade Commission (FTC) attempted to implement a total federal ban on non-compete agreements in employment contracts. Does that mean that companies can no longer enforce non-compete agreements or include them in their contracts with workers?

The courts have struck down the ban

Employers and business advocacy groups were quick to point out that a total ban on non-compete agreements was likely an overreach by the FTC. Several companies took legal action. A federal court judge recently upheld the assertion that the non-compete ban was an overreach in a crucial ruling.

The ban did not take effect, allowing businesses to continue relying on non-compete agreements to protect their interests. They can go to court to enforce an existing non-compete agreement if a worker takes a job with a direct competitor or starts a competing business. They can also continue including non-compete agreements in the contracts that they negotiate with their employees.

Of course, the terms included in a non-compete agreement have to be reasonable and align with both state and federal standards for the agreement to be enforceable. For example, the non-compete usually needs to include limitations on how long the company can enforce it and the geographic area to which the agreement applies. The worker also has to receive something of valuable consideration at the time they sign the agreement.

Some companies have begun expanding their contracts to include additional restrictive covenants in case there are future attempts to ban non-compete agreements. Both non-disclosure agreements and non-solicitation agreements extend important protections for employers that can enhance or reinforce the protection of a non-compete agreement.

Tracking changes to modern employment statutes can help organizations limit the risk that comes from hiring workers. The right contract terms, possibly including non-compete agreements, can help businesses protect against worker misconduct.