You likely rely on non-compete agreements to prevent (or at least slow) employees from leaving with customers and/or trade secrets. But that tool’s days are numbered.
President Biden just signed an executive order asking the FTC to “ban or limit” non-compete agreements. That includes private employers.
The Biden Administration says non-competes prohibit “economic mobility” by limiting people’s ability to change jobs. And that in turn keeps wages down because folks can’t jump to a better paying position elsewhere.
Between 36 million and 60 million workers are currently bound to them.
How far the FTC will go remains to be seen. We’ll keep you posted.
Beware this common mistake with non-competes
Before non-competes get the heave-ho you want to make sure the ones you do have in place work in your company’s best interest.
One of the biggest things that sinks your peers? The language in the agreement itself. Watch out for these two specific issues that have landed other employers in court:
- Unclear details. One company had a non-compete that an employee couldn’t engage in similar business “for a period of not less than five (5) years.” That reads like it could very well be more than five years. And that was exactly the position the employer took. But that couldn’t possibly be the spirit of the agreement, argued the court. No company could expect an employee to stay out of the field for an interminable amount of time. “Not less than five years” equals five years, said the court. Ensure all language and terms are as clear and straightforward as possible to avoid any potentially costly misinterpretations. (Cite: Pam’s Academy of Dance/Forte Arts Center v. Marik)
- Ambiguous language. Another employer’s non-solicitation covenant was unenforceable because the wording was too ambiguous. While the non-compete provision did prohibit “solicitation,” it didn’t specify what solicitations were impermissible. So the company was unable to take action against former employees who left together. Taking the time to make sure your contracts are 100% clear on the behavior and actions specifically prohibited could really pay off when you suspect they might have been violated. (Cite: Base One Technologies, Inc. v. Ali)