2024 is likely to see a slew of attempts to curb or eliminate the use of non-compete clauses by companies, even for executives. Here is what we expect to happen at both the state and federal levels – and what you can do about it.
- The FTC will likely finalize its sweeping federal ban. By all accounts, the FTC is moving full speed ahead on finalizing the rules it proposed last January, which extended to “de facto” non-competes and made no carve-out provisions for executives. Further, the rule was retroactive, meaning companies would be responsible for rescinding existing non-competes as well as avoiding new ones.
- New York isn’t done yet. Despite the governor’s last-minute veto of a broad ban in New York, both she and the state legislature are committed to a ban on at least low and middle-income workers. Jackson Lewis reports that although efforts in NY to agree on a minimum salary threshold failed, there was progress on excluding forfeiture provisions from the ban, which is good news for companies. State legislators have already vowed to reintroduce a noncompete bill this year – hopefully with more compromise.
- Coming soon to a state near you. Right now, only California, North Dakota, Oklahoma and Minnesota have total non-compete bans – but whatever New York winds up with will likely influence other state legislatures. Many more states have partial bans, especially with salary/hourly wage thresholds, so expect those to proliferate further.
What to do now? Although there will be significant legal challenges to total bans, some sort of restriction on non-competes seems likely in the near future, especially in blue states. Companies can take the following actions to prepare:
- Take stock of where non-compete clauses are found (employment agreements, franchise agreements, stock award agreements, severance policies) as well as who is covered (including terminated employees). Include forfeiture agreements in your analysis. Consider the smallest group of covered employees necessary to protect the business.
- Review agreements with current and former employees in California (including those who have moved to California) to make sure you do not run afoul of CA’s new laws tightening existing non-compete bans even further.
- Let your voice be heard! Many business organizations in the states and on the federal level are advocating for employers and for reasonable non-compete oversight, including HR Policy Association and the Center. Don’t hesitate to reach out if you’d like to be involved.