With a recent wave of new legislation and opinions, the future of non-competes is more uncertain than ever. 

What is a non-compete agreement?

A true non-compete agreement is a contract where an employee agrees to not accept competing employment for a certain length of time after their current employment ends. The agreement usually includes additional restrictions about the geographic location or specific market. Business owners sometimes also enter into non-compete agreements following the sale of a business, but those are treated differently by courts and fall outside this article.

A non-solicitation agreement, non-disclosure agreement, or anti-raiding agreement is not the same thing as a non-compete agreement, even though they are sometimes lumped together.  These types of agreements, standing alone, do not prevent a former employee from working for a competitor, but they can have a valuable place in protecting a business through other restrictions.

What is changing with non-competes?

On the national level, the Federal Trade Commission (FTC) has proposed a new rule that would ban employers from using non-competes with their workers in most circumstances. They also signed an agreement with the Department of Labor in September 2023 to work together on protecting workers from unfair conditions, which includes these agreements. This is not currently binding law, but it is a developing situation.

Also, The National Labor Relations Board issued a separate memo in May 2023 that called non-competes an unfair labor practice under many circumstances. Again, this is not a legal rule against the agreements, but it may cast a shadow over them, at least in some industries. 

At a local level, many individual states from Colorado to Oregon have also introduced legislation either banning or restricting non-compete agreements in the last few years. Indiana made its own update in July that redefines the law surrounding non-competes for physicians, making them unenforceable under some circumstances.  

What led to this new trend?

According to the FTC, non-compete agreements are harmful to workers because they lead to lower wages and benefits, while creating inferior working conditions. The FTC claims they also hurt businesses by restricting the amount of competition in a market and limiting innovation and progress. Some business owners may disagree with this, but some policymakers are paying attention to it.

Can you still have a non-compete agreement with an employee?

In both Indiana and Michigan, you can still have employees sign non-competes in most industries – at least for now. But based on these trends, employee non-competes might not be around forever. In fact, some employers are now abandoning them to show recruiters and employees they are a positive place to work. 

Employers still have other options available to protect their business. Non-solicitation agreements legally keep former employees from soliciting the company’s clients or other employees for a certain time, even if working for a competitor. Anti-raiding agreements can prevent valuable workers from being recruited away. And confidentiality or other non-disclosure agreements should be used to prohibit employees from sharing certain proprietary company information. All of these can help to preserve your company’s competitive advantage.

What does this mean for your business?

The law on post-employment restrictions can be intricate, and it has always been an area requiring a custom approach. Now, it’s more important than ever to partner with trusted legal advisors who understand your unique situation and the changing legal landscape. At THK, we are monitoring these ongoing changes and are available to create tailored solutions for your business.

 

Michael J. Hays, Business Counsel & Partner, THK Law, LLP

Author: Michael J. Hays is a civil litigation attorney and Partner at THK Law, LLP. His practice areas include employment law, business transactions, and real estate law. Michael is licensed to practice in Indiana and Michigan.

You can contact Michael by calling 574.232.3538 or email mhays@thklaw.com

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation. All THK blogs are considered advertising material by the Indiana Bar Association.