What Every Manufacturer Should Know About the Noncompete Agreement Ban

What Every Manufacturer Should Know About the Noncompete Agreement Ban

Last updated on June 13th, 2024

On April 23, the FTC issued a final rule banning noncompete agreements nationwide.

The final rule is effective September 4, 2024. While a number of lawsuits are underway challenging the rule (including one brought forward by the U.S. Chamber of Commerce), businesses – especially manufacturers – may want to consider the implications and what to do next.

Generally, noncompetes prohibit, penalize, or prevent workers from seeking or accepting work with another employer or opening their own business. The FTC’s final rule will make noncompetes unenforceable for the majority of workers, which include employees, independent contractors, interns, volunteers, apprentices, and sole proprietors.

Under the final rule, existing noncompete agreements for senior executives – defined as those in policy-making positions earning more than $151,164 – can remain in force, but no new ones are allowed after September 4. For all others, employers will need to notify workers covered by a noncompete agreement that the agreement will not be enforced. Notification must be in writing and delivered via email, text, or mail at the worker’s last known address (delivery by hand is also allowed). There’s sample language for the notice on the FTC noncompete rule webpage (scroll down to “Model Notices”).

There appear to be different schools of thought regarding how much effort employers should put into compliance right now, as we don’t know what may happen as a result of the many lawsuits challenging the rule. In light of the intellectual property, business strategy, industrial processes, and sales information that are fundamental to a manufacturing business’ competitive advantage and success, business leaders may want to consult legal counsel and engage Human Resources to begin defining a path forward sooner rather than later.

Key considerations include:

  • Do your contracts for employees and contractors include a noncompete clause? What about other provisions that help protect proprietary information? How will contracts need to change?
  • Do you currently have non-disclosure agreements (NDAs), non-solicitation agreements, intellectual property agreements, and confidentiality policies? Do you need to enhance or strengthen them?
  • Do you need to add, delete, or update employment policies and communicate changes to employees? Will new employee orientations and onboarding need to change as well?
  • Do you need a proactive retention strategy for key employees who may be enticed by competitors to jump ship? Can updated professional development, career planning, and rewards programs help keep potential poachers at bay?
  • Should you consider changing work processes and IT protocols to limit the number of people with access to strategy, intellectual property, sales, and other proprietary information?
  • Is there a need to make IT changes to help keep important data and files from leaving with employees?

As you navigate the potential implications of the final rule and what you must do to both comply and protect your business, you can count on RBT CPAs for all of your business advisory, accounting, audit, and tax needs. What’s more, our Visions Human Resource Services affiliate professionals are available to help you with employee handbook revisions, HR policies, total rewards analysis, and more. We hope to have the opportunity to show you how we can be Remarkably Better Together.

 

RBT CPAs is proud to say 100% of its work is prepared in America. Our company does not offshore work, so you always know who is handling your confidential financial data.

Please note: RBT CPAs is an accounting, audit, tax, and business advisory firm – not a law firm. The content in this article is for informational purposes only and should not be construed as advice. Should you need legal advice, we strongly encourage you to contact your legal counsel.