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How companies can pivot to embrace the non-compete ban

On Behalf of | May 30, 2024 | Business and Commercial Law

Employers often fail to recognize when their contracts may have become stale or outdated. It is commonplace for organizations to put together a boilerplate employment contract that they then use indefinitely whenever onboarding new talent. There are many issues with this approach to employment contracts, not the least of which is the lack of adequate protection afforded by boilerplate documents. Additionally, organizations may operate under the assumption that they have adequate protection when their contracts no longer address key employment concerns.

For example, outdated employment contracts may not have appropriate social media clauses preventing workers from engaging in online defamation or sharing a company’s trade secrets electronically. Other times, outdated contracts may include terms that are unenforceable or that violate the law. The new federal ban on non-compete agreements might mean that many companies have contracts that no longer offer appropriate protection.

When does the non-compete ban take effect?

Often, federal agencies announcing changes in employment law give companies months of advance notice. The planned increase in the minimum salary for overtime exemption is a perfect example. The federal government provided multiple months of advance notice regarding the change in policy and staggered the increase in salary across two separate dates.

The Federal Trade Commission (FTC) was not nearly so considerate toward employers when announcing its ban on non-compete agreements. The ban essentially took effect immediately, leaving thousands of organizations without adequate contractual protection against the misconduct of current and former workers.

Companies hiring after April 2024 can no longer add non-compete agreements to their contracts. Those organizations that have already signed agreements with key employees may have to renegotiate their contracts, as the non-compete agreement the worker signed is no longer enforceable.

If an employee previously bound by a non-compete agreement goes on to work for a competitor or starts their own business, their employer may have no legal form of recourse. Organizations may need to negotiate new restrictive covenants or even rework the division of labor within the company to more effectively protect trade secrets in response to the ban on non-compete agreements.

Employers typically benefit from creating custom employment contracts for different roles within a company and reviewing them regularly to ensure that they address modern workplace concerns. Re-reading and updating employment contracts can take much of the risk out of hiring employees.