For nearly one in five workers in the United States, leaving their job just became a lot easier as the Federal Trade Commission issued its final rule banning all non-compete contracts.
This means that by the end of the summer, nearly all employees who are subject to a non-compete contract right now will be free to work wherever they want, even in competing firms they were barred from.
According to their release, the FTC estimates this “will lead to new business formation growing by 2.7% per year, resulting in more than 8,500 additional new businesses created each year.”
Furthermore, the FTC says it will increase wages “by an additional $524 per year, and it is expected to lower health care costs by up to $194 billion over the next decade.”
Finally, the FTC says: “The final rule is expected to help drive innovation, leading to an estimated average increase of 17,000 to 29,000 more patents each year for the next 10 years under the final rule.”
The Orlando Law Group wrote about the possible impacts of this rule in November warning businesses this may be a possibility. Now, businesses must prepare to take action over the next few months.
The attorneys at The Orlando Law Group can help your business prepare and work through any issues this new rule may cause.
What is a non-compete contract?
As we wrote in November, in most cases, the non-compete contract is presented as part of the employment package at the time of the person being hired.
Under the non-compete contract, an employee is not able to work for a competitor for a specified period, many times several years. If the employee decides to work for a competitor, they will be required to pay back any severance and, perhaps, damages.
Too often, it was not a negotiated contract, but something that was required – basically a “sign this if you want to work here.”
And since the employee has very little negotiation power at that point, the non-compete contract is often valid regardless of how the employment is terminated – even if the worker is laid off or fired!
Federal government says non-competes are bad for the economy.
In a nutshell, the Federal Trade Commission says non-compete contracts are an “unfair method of competition” and are in violation of Section 5 of the Federal Trade Commission Act.
That act says anything that affects consumers in the following ways is not permitted, specifically something that:
- causes or is likely to cause substantial injury to consumers,
- cannot be reasonably avoided by consumers, and
- is not outweighed by countervailing benefits to consumers or to competition.
In dealing with non-competes, the Federal Trade Commission says it will increase the wages in the United States by $300 billion and give employment freedom to more than 30 million Americans.
In addition, the government maintains that by eliminating non-compete contracts, prices will decrease because there will be more competition.
“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said FTC Chair Lina M. Khan in the release announcing the rulemaking process in November. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand.
“By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition,” she added.
What should businesses do today?
Now that the rule is final, it is time for businesses to take action.
First, businesses need to review their non-disclosure agreements to ensure they are extensive without any loopholes. The FTC did not eliminate non-disclosure agreements. They encouraged them.
In other words, the employee can work for a competitor, but it can not share your secrets to that new employer.
Then, you need to categorize all trade secrets, those things that make your product or service unique and all the reasons why. Those should be protected by a non-disclosure agreement as well.
Finally, any business with non-compete contracts must notify all employees covered by them that they will not be enforced by the beginning of September.
There is one exception, however.
Senior-level executives who have a non-compete contract will have those agreements continue through their agreed-upon terms, but they cannot be renewed and new ones cannot be entered into.
It is estimated that less than one percent of all non-disclosure agreements are for senior-level executives, those individuals making more than $151,164.
As such, the only protection a business would have from an employee taking their trade secrets to a competitor is by having a non-disclosure agreement.
The attorneys at The Orlando Law Group can help businesses with these types of contracts in Orlando, Waterford Lakes, Altamonte Springs, Winter Garden, Lake Nona, St. Cloud, Kissimmee, and Central Florida.
If you have questions about anything discussed in this article or other legal matters, give our office a call at 407-512-4394 or fill out our online contact form to schedule a consultation to discuss your case. We have an office conveniently located at 12301 Lake Underhill Rd, Suite 213, Orlando, FL 32828, as well as offices in Seminole, Osceola and West Orange counties to assist you.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.
Last Updated on April 24, 2024 by The Orlando Law Group
