Non-compete agreements are common in the workforce. A non-compete agreement typically prevents employees from working with specific competitor companies if they leave their current job. More than 30 million workers are required to sign non-compete agreements when accepting a job. Non-compete agreements are used to protect companies from former employees exposing confidential information to competitors.
Any employer who is looking to begin using non-compete agreements should first speak with an employment law attorney. These agreements can be difficult to enforce and may cause more harm than good if used incorrectly.
There are a number of things to consider if you are thinking of adding non-compete agreements to your company.
Which Employees Should Sign a Non-compete Agreement?
Some of the positions that often require non-compete agreements include:
- Sales professionals
- Employees doing research or product development
- Employees in advertising, marketing, or creative work
- Employees who have authority over manufacturing
- Engineers skilled in designing
Elements of a Non-compete Agreement
Here is what you can typically find in a non-compete agreement:
- The company explains that employees are restricted from working for competing companies in the same industry
- There is a specific time period that a departing employee must wait before they can find employment in the same industry. The timing can vary for each company; however, six months to two years is most common.
- Some non-compete agreements allow former employees to work in the same industry outside of the state they previously worked in; however, this could vary for each company, and will be specified in the agreement.
- Lastly, non-compete agreements typically specify, by name, which competitors their employees cannot work for.
Federal Trade Commission Proposed Rule Banning Non-compete Agreements
On January 5, 2023, the Federal Trade Commission (FTC) proposed a new rule to prohibit employers from enforcing non-competes on their employees. Once the rule is published in the Federal Register, there will be a public comment window of 60 days.
The FTC’s proposed rule is intended to give workers the freedom to leave their current job if they are provided with better wages and working conditions at another company. The FTC believes this can create healthy competition and more flexibility within the workforce. The FTC estimates that this new rule could increase worker’s earnings by $300 billion a year.
This proposed rule would apply to all employees. If any employees are under a current non-compete agreement, this new rule would also require employers to inform their employees that their non-competes are no longer in effect.
In an informal rulemaking process, an agency is required to issue a notice of the proposed rulemaking, then they provide an opportunity for public comment before it can be a finalized rule. The proposed rule and public comments determine the basis of the final rule.
If you would like to submit a comment to the FTC about your opinion on this new proposing rule, here is the link: https://www.ftc.gov/legal-library/browse/federal-register-notices/non-compete-clause-rulemaking
If you have questions regarding non-compete agreements, reach out to our HR experts at firstname.lastname@example.org