Non-compete agreements were briefly banned by the Federal Trade Commission. The FTC determined that they were too restrictive for workers, meaning they could be used to suppress wages. They banned the use of these agreements in all but a few rare exceptions to try to give workers more mobility to switch employers.
However, courts were quick to issue legal challenges to this new rule. In 2024, the FTC made a significant change. They decided to vacate the rule. They are not going to challenge the legal cases against it, but instead are simply removing the rule, meaning that non-compete agreements can once again be used.
How should these be set up?
Even though a non-compete agreement can be used, it should be designed fairly and with respect for the employee’s rights. In many cases, there are some restrictions that will need to apply.
For instance, a non-compete agreement may have a geographical restriction. Perhaps the person is prohibited from working for the competition within a certain mile radius or a certain municipality. But it is unlikely that the non-compete would be enforced if it tried to prohibit them from working for a competitor anywhere in the United States, as that is too broad of an application.
Time limits will also sometimes apply. A non-compete agreement may last for just a year after someone leaves their position, rather than lasting for the rest of their career.
Drafting employment contracts
It is important to consider when the FTC implements or retracts new rules, especially as they regard how employment contracts can be drafted or enforced. Business owners and employees need to be well aware of their legal rights and keep an eye on these developments.