The Federal Trade Commission (“FTC”) recently banned non-compete clauses in employment contracts. This ban means that effective from the ban, all post-employment non-compete agreements with workers (regardless of classification as an employee, volunteer, independent contractor, or other designation) will be prohibited. The ban also includes clauses in severance agreements that state employees must not compete.
There are exceptions for current non-competes with senior executives. Also, the rule exempts non-solicitation agreements and nondisclosure agreements. Specific industries are exempted (banks, insurance companies, nonprofits, transportation and communications common carriers, air carriers, and other entities.) The ban does not apply between franchisees and franchisors. And finally, it does not involve the sale of business exceptions.
What does this mean for your business? If you have non-competes with your employees, you must notify them that those agreements will no longer be in effect and will not be enforced upon the rule’s effective date.
The FTC ban should not change much for Massachusetts because most non-competes are unenforceable in this state. I’ve always been wary of them because of the strict drafting requirements. A much better alternative is with non-solicitation agreements and nondisclosure agreements. These are better at providing security to the employer without fear of the agreement being unenforceable.
If you have employees, a non-solicitation agreement and nondisclosure agreement are essential, especially if there is concern that employees may take clients if they leave.
If you have questions about the ban, non-solicitation, and nondisclosure agreements, please reach out.