Two days ago, the FTC issued its final rule banning noncompete agreements nationwide. The new rule will render existing noncompete agreements unenforceable for the majority of employees who have signed them. Existing noncompete agreements with “senior executives” will remain in force, but the rule prohibits employers from entering into or attempting to enter into any new noncompete agreements. The rule also requires employers to give employees other than senior executives notice that they will not be enforcing noncompete agreements against them. Senior executives are those who make more than $151,164 annually and who are in policy making positions. The new rule will be effective in approximately 120 days.
The FTC’s position is that noncompete agreements depress wages and prevent the formation of new businesses. It estimates that eliminating noncompete agreements will result in more than 8,500 start up businesses each year. Of course, those start-up businesses are most likely to be spearheaded by employees who leave their employment with a flash drive containing a copy of their former employer’s databases. This will require employers to use other methods to protect their confidential and trade secret information, including:
Extensive use of confidentiality and non-disclosure agreements;
Compartmentalize and password protect business information so that only employees who need to have access to different information to perform their jobs have access (e.g., restrict salesperson access to vendor and billing information);
Have confidential and trade secret information clearly marked (both in print and electronically) as “Confidential”;
Invest in software that will reveal any downloading of data, and provide warnings of any unusual downloading and similar activity as well as the identity of the person engaged in the activity;
Avoid situations where only one person controls all or a part of a business (e.g., have multiple sales people assigned to each customer so one does not control that business); and
Have redundancy in positions so that if one person leaves another is ready to step in without any disruption or learning curve.
In other news, the Labor Department also issued a new rule on Tuesday governing overtime pay. Under the new rule employees will not be considered exempt unless they make more than $43,900 per year (effective July 1, 2024) and $58,700 per year effective January 1, 2025.