Update (August 20, 2024): The proposed FTC ban on noncompete agreements has been halted by a federal judge in Texas. In her decision, Judge Ada E. Brown stated that the FTC overstepped its bounds and that the rule was overly broad. As a result, the ban, which was anticipated to take effect later this year, will not be implemented at this time. Noncompete agreements remain enforceable under the current legal framework, though the FTC may choose to appeal or pursue individual cases. Businesses should continue to monitor developments in this area.
Most business owners are probably aware by now that the Federal Trade Commission (FTC) issued a final rule this year that bans non-compete agreements for all workers. The impact of non-compete agreements has been debated for years, and several states have banned them. Employers will now have to look for new employee retention strategies and methods for protecting business secrets. Here’s a closer look at the implications of workers now being able to switch jobs at will, and how HR technologies can help to navigate these changes.
Implications of the Non-Compete Ban
Non-compete clauses have been an employer-friendly method of protecting talent and intellectual property from competitors. Imagine the frustration of hiring and training an employee and then teaching them the proprietary secrets of your business, only to have them walk across the street and take a job with your competitor. Critics, on the other hand, argue that non-competes stifle workers’ ability to take their talents wherever they want.
The ban on non-competes is set to go into effect on September 4, 2024. However, multiple lawsuits are expected to challenge the Final Rule. This could end up in courts delaying the implementation of the rule or overturning it entirely. Since it is impossible to predict which scenario will happen, the best practice for business owners is to plan as if the rule will go into effect on schedule.
Employee Contracts and Payroll Structures
Employers are required to notify current and former employees of the rule change before it goes into effect. This will require determining which employees are currently under non-compete agreements and which former employees are still under such an agreement. Employee contracts will have to be rewritten so that workers are no longer under the restrictions of a non-compete agreement.
While non-competes will be going away, there are still some methods that employers can use to at least protect their intellectual property. Non-disclosure agreements (NDAs) are still allowed under the rule change. However, an NDA must be carefully worded so that it does not function as a de facto non-compete clause. Employers should seek legal advice on non-competes and NDAs to ensure that new agreements are properly worded.
Non-solicitation clauses will also remain legal for the time being. These clauses can prevent workers from stealing clients and colleagues from their former employers.
Managing Changes with HR Technologies
Once the non-compete ban goes into effect, employee retention is going to become even more important. One way to help navigate these upcoming changes will be through the use of innovative HR technologies. Moving forward, companies that have relied on non-competes in the past will have to assume that every employee is now at risk of leaving at a moment’s notice. To counteract this, companies will need to foster a company culture of retention.
This is about more than simply offering your best workers more pay. Loyalty can be increased when employees feel like they are a vital and valued part of the company, and if they are fully on board with your mission. Offering opportunities for career development and advancement, which can be implemented through HR technologies, is a way to achieve this. HR can also help to enhance benefit packages that can help with retention.
Preparing for the Upcoming Changes
In addition to enhancing career opportunities and providing notice to employees and former employees, there are some additional ways for business owners to get ready for this major shift.
It’s time to start planning your future agreements. Contracts will have to be rewritten to remove non-compete clauses while improving non-disclosure and non-solicitation agreements.
Non-compete clauses can remain in effect for senior executives, defined as CEOs and other decision-making executives earning more than $151,164 annually. Those non-competes are “grandfathered” in, but companies are prohibited from imposing non-competes on newly hired executives after the rule goes into effect. Companies should identify all existing senior executive positions and prepare to make the proper changes when those positions are eventually replaced.
Finally, monitor ongoing litigation against the new Final Rule. The ban on non-competes could eventually be overturned or altered, so the best practice will be to stay on top of what’s happening with the lawsuits against the rule.
Using HR Technologies to Adapt
Once it goes into effect, the ban on non-compete clauses is expected to impact more than 30 million workers. Employers should start doing the work now to foster a culture of retention so they don’t lose too many workers for their business model to remain viable. HR technologies can help achieve this by providing career development and enhancement opportunities, as well as creative benefits packages.
Schedule a consultation with our HR experts to tailor your employment agreements to your business needs without relying solely on non-compete clauses. Protect your business smartly and legally—contact ASAP Payroll today!
