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FTC bans all noncompete agreements 

On Behalf of | May 16, 2024 | Business Litigation

A noncompete agreement says that an employee has to stay with the company where they are employed. If they decide to quit, which they do have a right to do, they can’t immediately join the direct competition. The agreement will likely also say that they can’t start a new company that would be direct competition.

These agreements have not always been used everywhere, as some states – like California – already refused to uphold them in the majority of cases. However, the Federal Trade Commission (FTC) has recently made a major change and issued a new final ruling. They are prohibiting the use of noncompete agreements in Kentucky and all across the country. They claim that this will help workers by allowing more mobility and a chance to seek higher wages.

What if the noncompete agreements already exist?

The final rule does note that employers can’t create new noncompete agreements, but there is the chance that employees will already be bound by agreements they signed in the past. 

In that situation, it depends on the type of employee. For some senior executives, these noncompete agreements may still stand. New ones cannot be created after 2024, but existing agreements aren’t thrown out.

However, senior executives make up a tiny fraction of the workforce. For the vast majority of workers, even if they already signed a noncompete agreement, they don’t have to abide by it. If they break the agreement and their former employer tries to sue, that agreement will not be upheld in court.

Business owners need to understand this change and what it may mean for their employment contracts moving forward.