What is a Non-Competition Agreement?
A non-competition agreement, commonly referred to as a “non-compete” is an agreement between an employee and employer which limits the acceptance of outside employment opportunities for the employee, as well as the ability to work for competitors after their employment ends. Every non-compete should have specialized terms, which may include but are not limited to:
· The prohibition of additional employment while working for the company
· Geographical limits on where a previous employee can work
· Time limits as to when a previous employee can seek employment with competitors
· Limits as to what job title a previous employee can accept with another company
· Limits as to what type of company a previous employee can work for after leaving
Although these non-compete agreements are typically given to executive employees who earn high wages or to employees who have access to trade secrets/information about company business practices, employers have been known to have all kinds of employees sign non-competes. These agreements are given to employees to protect the company from high employee turnover, and to ensure that their employees are committed for whatever duration of time noted in the agreement. These agreements also prevent employees from taking their experience to rival companies, in turn, causing harm to the original employer.
Have Non-Competition Agreements Always Been Allowed?
Many states have voiced concern about the impact of non-competes on the economy and society as a whole. In response, California, Minnesota, North Dakota and Oklahoma have banned non-competes entirely while 11 states, including Maryland, Virginia, and Washinton D.C., have introduced wage caps to regulate who can and cannot sign an enforceable non-compete agreement.
Are Non-Competition Agreements Banned Now?
On April 23, 2024, The Federal Trade Commission (“FTC”) voted to ban non-competition agreements nationwide. This decision was made in an attempt to protect employees from abusive employers and to prevent suppression of wages. The U.S. Chamber of Commerce has responded by filing a lawsuit to block this FTC decision from taking effect in 4 months. The Chamber of Commerce has questioned the FTC’s right to take non-compete regulations out of the hands of state officials and its lawsuit claims that the unelected commissioners of the FTC should not have the authority to ban the use of non-competes nationwide.
It is impossible to predict what the outcome of this FTC vote will be. Every non-competition agreement is different, and violations of the terms and conditions of any restrictive covenant cannot be diagnosed through blanket statements or Google searches. If you have questions about non-competition agreements, call our office at 301-441-1400 to speak with an expert employment law attorney here at Thatcher Zavaro & Mani. Your employment issue is important, and we are happy to advise you on your best next steps.
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