As a business owner, staying informed about regulatory changes that could impact your operations is crucial. One such change on the horizon is the Federal Trade Commission's (FTC) new rule regarding noncompete agreements. At Peak Advisers, we want to ensure you're prepared for this significant shift in employment law.
What's changing?
The FTC has issued a new rule to ban most noncompete agreements between employers and workers. This change represents a significant shift in how businesses can protect their interests and manage their workforce.
When does this take effect?
The new rule will take effect 120 days after it is published in the Federal Register. The exact publication date has yet to be announced, but businesses should start preparing for this change immediately.
What does this mean for your business?
Ban on New Noncompete Agreements: Once the rule takes effect, employers will be prohibited from entering into new noncompete agreements with workers, including employees, independent contractors, externs, interns, volunteers, apprentices, and sole proprietors who provide a service to a client or customer.
Existing Agreements: Employers must rescind existing noncompete agreements and inform current and former workers that these agreements are no longer in effect.
Limited Exceptions: The rule does allow for noncompete agreements in the context of the sale of a business, where the restricted party owns at least 25% of the sold business.
Alternative Protections: While noncompete agreements will be largely banned, other forms of protection, such as non-disclosure agreements and client non-solicitation agreements, will still be permissible if they don't function as de facto noncompete clauses.
What actions should you take?
Review Existing Agreements: Audit your current employment contracts and identify any that contain noncompete clauses.
Prepare for Rescission: Develop a plan to rescind existing noncompete agreements once the rule takes effect.
Communicate with Employees: Be prepared to notify current and former employees (from the past two years) that their noncompete agreements are no longer in effect.
Explore Alternative Protections: Consider other legal means to protect your business interests, such as confidentiality agreements or carefully crafted non-solicitation agreements.
Update Hiring Practices: Once the new rule takes effect, ensure that your hiring and onboarding processes are updated to comply with it.
Seek Legal Counsel: Given this change's complexity, consult with an employment law attorney to ensure full compliance and explore your options.
Impact on existing agreements
If your business currently has noncompete agreements, it's important to understand that these will likely become unenforceable once the new rule takes effect. It would be best to inform workers that these agreements are no longer valid. However, until the rule takes effect, existing agreements remain enforceable under current law.
Accessing HR support
Navigating these changes can be challenging, especially for small to medium-sized businesses without dedicated HR departments. It's worth noting that if you're using QuickBooks Online Payroll, you can access human resources services at no additional charge. These services can be invaluable when dealing with complex issues like changes to employment agreements and ensuring compliance with new regulations.
At Peak Advisers, we're committed to helping you navigate these changes. While this shift may present challenges, it also offers an opportunity to reassess and strengthen your business practices. Proactively adapting to these new regulations ensures your business remains compliant and competitive in this evolving landscape.
Remember, while we strive to provide accurate information, this post is for general informational purposes only and should not be considered legal advice. Always consult with a qualified legal professional for specific guidance related to your business.
We’ll have additional information for you as we approach the implementation date of this new rule. If you have any questions about how this might affect your business operations or financial planning, please get in touch with Peak Advisers.