For years, employers have turned to employee contracts and in-depth handbooks as ways to mitigate the liability that comes with hiring new talent. Restrictive covenants have long been popular inclusions in modern employment contracts. These special clauses allow employers to prohibit certain types of conduct during or after an employment arrangement. Noncompete agreements have become so popular that tens of millions of workers have noncompete terms included in their employment contracts.
However, the Federal Trade Commission (FTC) recently voted to ban noncompete agreements. Employers who have previously used noncompete agreements may need to revisit their employment contracts to protect themselves as a result.
New contracts may be necessary
Contrary to what people might assume, the noncompete ban does not just apply to new employment contracts after the date when the FTC adopted its new final rule in April 2024. Instead, the law applies even to existing noncompete agreements.
A worker who left their job 12 months ago might still be bound by a noncompete agreement for another year or two. However, following the ban, a former employer can no longer take legal action to enforce the agreement if that worker accepts a job with a competitor or starts their own business. Unfortunately, companies have few options for protecting themselves in cases involving a non-compete agreement that applies to a worker who has already left their position with the company.
Thankfully, organizations do have options available when hiring new talent and when existing contracts may have relied on noncompete agreements. Other restrictive covenants can serve to replace noncompete agreements in many cases.
Non-solicitation agreements can prevent employees from trying to hire their former co-workers, thereby depriving a business of necessary talent. A non-solicitation agreement can also prevent workers from attempting to do business with customers or clients that they know about due to their employment arrangements.
Non-disclosure agreements are another option, as they prevent workers from sharing non-public information about a company’s operations. Organizations attempting to sign new contracts with existing workers may need to proceed with caution, as they must offer something of valuable consideration in return for the concessions that the employees make.
Granting workers a single extra vacation day is a common option, although each arrangement requires careful planning. Organizations may even need to restructure how they allocate certain job responsibilities to diminish the likelihood of former employees misusing information that they learned while working at the company.
Acting quickly to minimize employment-related liability concerning contract updates is a smart reaction to changing employment standards. Businesses that update their contracts can eliminate noncompete agreements without losing the protection that restrictive covenants provide.