The FTC Voted to Ban Non-Compete Agreements - What You Need to Know

As a business owner in Pennsylvania, you may have heard about the recent announcement by the Federal Trade Commission (FTC) banning non-compete agreements. This decision could have significant implications for your business and its employees.

Non-compete agreements are contracts that restrict employees from working for a competitor or starting a competing business for a certain period of time after leaving their current employer. These agreements have been a common practice for many businesses as a way to protect their trade secrets and client relationships.

However, the FTC has determined that non-compete agreements can be anti-competitive and harm workers by limiting their ability to find new job opportunities. The ban on non-compete agreements is part of the FTC's broader efforts to promote competition and innovation in the marketplace.  This new rule could impact an estimated 30 million workers (or 1 in 5 Americans) who are subject to a non-compete through their current or former employers. Barring a successful legal challenge in the courts, this new rule will go into effect in 120 days (August 2024).

What You Need to Know

It applies to many workers, not just employees.

This rule paints with broad strokes, applying the ban not only to employees (both hourly and salaried), but also independent contractors, externs, interns, volunteers, apprentices, or any sole proprietor who provides a service to a client or customer. 

Businesses have a notification obligation for existing non-competes. 

This new rule not only prevents employers from entering into new non-compete agreements with workers, but it also requires employees to rescind existing non-compete clauses. The rule also requires that employers notify parties that are currently subject to a non-compete, that the agreement is now void and unenforceable.

There are exemptions.

Existing non-competes with senior level executives remain in effect, but new agreements, even with executives, are banned.

What Now?

For business owners in Pennsylvania, this decision means that you will need to review and potentially revise your employment contracts to comply with the new regulations. It is important to seek legal advice to ensure that your agreements are in line with the law and do not expose your business to potential legal risks.

Additionally, business owners should consider alternative ways to protect their trade secrets and client relationships, such as implementing confidentiality agreements, non-disclosure agreements, and non-solicitation agreements. These measures can still provide protection for your business without the potential negative consequences of non-compete agreements.

Overall, the ban on non-compete agreements by the FTC is a significant development for business owners in Pennsylvania. It is important to stay informed about these changes and work with legal counsel to ensure that your business is compliant with the new regulations. By taking proactive steps now, you can protect your business and its employees while promoting a competitive and innovative marketplace. 

The experienced business attorneys at Fiffik Law Group are ready to help you understand how this groundbreaking FTC rule impacts your business.