Noncompete agreements are sometimes used by employers for a variety of reasons. On the one hand, they can reduce turnover and make the workforce more stable. On the other hand, they can help protect intellectual property or trade secrets because employees are not just leaving to work for direct competitors.
As an employer, you may have heard that the Federal Trade Commission banned noncompete agreements. This was briefly true, as the FTC issued a rule saying that noncompete agreements could not be used moving forward and that the vast majority of existing agreements would not be upheld.
However, this recently changed when the FTC vacated that rule earlier this year, meaning that you can now use noncompete agreements again when drafting employment contracts. The FTC can still review some of these agreements on a case-by-case basis, but there is no longer a blanket ban.
What was the reason for the change?
The reason for the initial ban was that the FTC believed workers were being improperly restricted. If they could not move to a competitor, it could make it harder for them to advance their careers or seek higher wages.
However, the courts determined that the FTC did not have the authority to issue such a rule in the first place. The FTC initially considered an appeal but later decided to drop it. That is when the rule was vacated, and the agency decided that case-by-case enforcement would be more appropriate.
Changing employment laws
This development can have a significant impact on how you draft employment contracts and manage your workforce. It is very important to understand how employment laws evolve and what legal options you have.