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Non-Compete Agreements: What Business Owners Need to Know

Recent developments have dramatically changed the playing field, making it more important than ever for business owners to stay informed.


What is a Non-Compete Agreement?

A non-compete agreement is a contract between an employer and employee that restricts the employee from working for a competitor or starting a competing business for a specified period after leaving their job. The primary purpose is to protect the company's legitimate business interests, such as trade secrets, client relationships, and competitive advantage.

  • Duration - Typically ranges from six months to two years post-employment.

  • Geographic - Often limited to a specific region where the company operates.

  • Industry Specificity - Usually restricted to the same or closely related industries.

  • Consideration - In many jurisdictions, the employee must receive something of value in exchange for signing.

  • Reasonableness - Courts generally require these agreements to be reasonable in scope and duration.

On April 23, 2024, the Federal Trade Commission (FTC) voted to ban most non-compete clauses in employer-employee contracts. This groundbreaking rule, called the Final Non-Compete Clause Rule, will go into effect on September 4, 2024.

  1. Employers are prohibited from entering into, enforcing, or attempting to enforce non-compete agreements with workers after employment, with limited exceptions.

  2. Employers must notify workers with existing non-compete agreements that these agreements will not be enforced.

  3. The FTC considers non-compete agreements to be "unfair methods of competition".


What This Means for Business Owners


For most of you this may not change a lot, however, if you have a team you may want to review the following:

Review all Employment Documentation Review employee docuemnts that may include information relating to non-compete. This most likely will be your employee handbooks or employee contracts.


You may also want to review other agreements such as confidentiality and non-disclosure, to ensure other areas are protecting your business interests.

Protect Information This is especially important with propriety information. You don't want any employees parting the company to share company information with any competitor. Review the structure and access of information to ensure that employees only have access to the level of information required for their role.


For example, keeping financial information only accessible to those that need to know numbers to make decisions in their role.


Retain Employees

With people able to freely move between companies, it would be recommended to invest in employee retention strategies. That doesn't mean you need to increase everyone's compensation. Statistics show that working environments and growth opportunities are equally important, so take the time to create a culture that employees want to stay!

Legal Consultation As always, consult with legal to get guidance on your specific situation and to be compliant based on your business industry.



 


DISCLAIMER

The Finance Agency are accounting professionals however, any information contained or given is for educational purposes only and does not a substitute for financial advice from a professional who is aware of the facts and circumstances of your situation.   Please consult with a CPA, tax preparer, or accountant that is working with your specific business situation and State regulations.

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