Thorough employment contracts help to protect businesses from the risks inherent in employment relationships. Employers use contracts to clarify their expectations for workers and also to establish what they intend to provide in return for a professional’s time and expertise.
Particularly when a vacant position involves access to trade secrets like client rosters or proprietary processes, employers may try to protect themselves by integrating restrictive covenants into their employment contracts. For years, noncompete agreements have been among the most popular restrictive covenants when hiring new workers or promoting existing ones.
Recently, noncompete agreements have been the source of much confusion and conflict. Do businesses still have the option of enforcing noncompete agreements against former workers?
The status of noncompete agreements is in limbo
The Federal Trade Commission (FTC) has an interest in ensuring an appropriately competitive marketplace. The FTC helps oversee certain trade and employment practices for the protection of the overall economy.
In April 2024, the FTC announced a new final rule prohibiting noncompete agreements across the country. The rule applied not just to new contracts drafted after the implementation of the rule but also existing contracts that already included such terms.
Not long after the FTC adopted the new final rule, lawsuits began flooding into courts across the country. A federal court judge in Texas recently ruled that the FTC exceeded its authority by implementing this rule. However, since then, a different federal judge in Pennsylvania ruled that limiting business efforts to undermine fair competition and worker career development is within the scope of the organization’s authority.
There are likely to be many more cases that go to court before there is any real clarity about the final rule prohibiting noncompete agreements. Employers seeking to enforce an existing agreement may need to look at the alleged breach of the agreement and the original contract carefully to determine if legal action is appropriate. Businesses seeking to avoid potential future misconduct on the part of workers may need to explore different means of limiting unfair competition.
Employers may need assistance adjusting practices as federal rules change and may also require guidance while navigating employee disputes. Updating contracts and renegotiating with workers might be a smart move for organizations worried that their existing noncompete agreements no longer extend adequate protection.
