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Addressing unenforceable noncompetes with current employees

On Behalf of | Jul 5, 2024 | Business Law |

The contract signed when a company hires or promotes a worker serves to set expectations and clarify the arrangement between the company and the employee. Standard employment contracts include details about basic job expectations and compensation for the worker. Organizations also often include terms to reduce the degree of risk involved in hiring employees.

Adding restrictive covenants to employment contracts has long been a means for employers to limit liability. A non-compete agreement could protect an employer from a worker trying to solicit their clients after they leave for a new job or an employee using trade secrets to infringe on a company’s market share. However, although restrictive covenants are often very useful for the protection of a business, but policymakers worry that they may negatively affect innovation and career development.

How policies recently changed

Professionals in a variety of sectors may be less likely to pursue the creation of their own company or better positions with different businesses if a non-compete agreement restricts their opportunities. Recently, the Federal Trade Commission (FTC) implemented new rules officially prohibiting the enforcement of non-compete agreements in employment contracts. Even contracts signed years ago are unenforceable in court. How can businesses pivot to protect their interests without relying on non-compete agreements?

New employment contracts are likely necessary

Technically, the FTC rule making non-compete agreements unenforceable does not completely invalidate employment contracts already signed by workers and businesses. However, without the protection of restrictive covenants, the business might be relatively vulnerable.

Employers may want to consider drafting new contracts and negotiating new arrangements with their employees. That process can be relatively complex. Organizations have to find something of valuable consideration to offer employees in return for making concessions in the new contract. Offering a one-time vacation day or a small bonus might work in some cases.

Additionally, companies need to properly structure their contracts in a way that helps protect their trade secrets and prevent worker misconduct. Confidentiality or non-disclosure agreements and non-solicitation agreements can be beneficial when re-working employee contracts.

Discussing recent changes in employment law and potential future changes with a skilled legal team can help those in positions of authority at organizations to better ensure the protection of the company as employment laws continually evolve. Recognizing when existing contracts no longer offer adequate protection can help organizations minimize exposure.


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