Join America Back to Work, a weekly podcast, video, and blog series that covers timely and relevant topics affecting the labor market and workforce with industry experts. The series includes recruiting, hiring, retention, employee satisfaction, customer service, background screenings, and more.
Noncompetes Are Getting Banned––Here’s How to Stay Compliant
Earlier this year, the Federal Trade Commission (FTC) proposed a new rule that would ban employers from requiring workers to sign non-compete agreements in their employment contracts and void any existing non-compete agreements.
The ban, however, still remains in idea form after the proposal received 27,000 comments during a public forum held in April of this year where any concerned parties could share their criticism or support for it. The final vote is set to take place in April 2024 to create time for revisions that reflect those comments.
Supporters of the ban believe that the new rule will increase career mobility, support entrepreneurship, and remove ceilings for employees on wages.
The Non-Compete Problem
Non-compete clauses restrict employees from working for competitors after their employment is over or starting a similar business in a specific region for a set duration after leaving their current employer. They are signed at the start of employment and apply regardless of whether the employee is terminated or resigns.
Non-compete agreements are designed to protect employers’ intellectual property, proprietary data, and confidential information—to stop workers (especially those that don’t leave on great terms) from bringing that information to a rival company.
Interestingly, they can also positively affect employee retention since non-competes discourage employees from exploring comparable roles at competing organizations within the industry.
Non-compete critics, however, argue that these kinds of agreements over-serve employers, and create an unfair method of competition, while suppressing wages, stifling innovation, and making professional advancement more difficult for employees.
In fact, because of this imbalance, the FTC explicitly stated that non-competes violate Section 5 of the Federal Trade Commission Act (hence their move to create a federal ban).
States are Restricting Non-Competes (And You Should Too)
As a result, many states have banned non-compete agreements ahead of the federal government, including California, North Dakota, Oklahoma, and Minnesota; New York is expected to follow suit by the end of the year.
The trend is gaining political traction across the country and is likely to spread to more states in the near future, which means it’s time for employers and HR departments everywhere—even those in states where bans do not yet exist—to revisit their employment agreements to reduce forthcoming compliance risk.
“There’s a huge rush to ban non-competes altogether. Some states are already there,” said Pavirithi Kilgore, a recent guest on our America Back to Work: Expert Interview Series. “Employers need to be careful.”
“Being careful” in the context of non-competes means employers in locations where bans exist must update their employment practices to comply with state law. Employers that hire remote employees across state lines should do the same to remain compliant.
Those operating in states without a ban should familiarize themselves with state-by-state laws around non-competes to prepare for what’s coming and update their employment practices to meet those standards.
Some state laws allow non-compete agreements for employees whose salary is above a certain threshold, and others don’t. Some state laws permit non-compete agreements concerning the sale of a business, and others don’t. Some states also stipulate that you can’t have a non-compete in certain professions, like medicine or law.
The best thing employers can do? Start planning for alternatives to non-competes, like NDAs and nonsolicitation agreements, which are less restrictive ways to protect trade secrets.
More Ways to Stay Compliant
For more ideas on preparing for a future without stricter non-compete laws, tune in to the discussion with Pavirithi Kilgore.
She is an HR consultant focused on risk mitigation with expertise in pay transparency, background screening compliance, and labor relations. She shares her projections for the top compliance concerns for companies in 2024 and how to manage them (hint: non-competes are on the list).
Click here to listen to (or watch) the episode wherever you get your podcasts.