Employment contracts allow companies to limit how much risk they take on when hiring new workers. A thorough employment contract protects against liability and helps to clarify expectations.
Restrictive covenants are one of the more popular ways for modern employers to protect themselves against the potential misconduct of their employees. Historically, noncompete agreements have helped to prevent workers from using trade secret information for personal gain. Provided that they granted the worker some valuable consideration, like a job offer, an employer could demand certain concessions even after the worker left their employment.
Noncompete agreements prevent workers from starting a competing company for a time or taking what they learn at your business to a direct competitor. Yet, there seems to be a major federal showdown coming related to the use of noncompete agreements by employers.
Is a federal ban in the works?
There has been some skepticism about the usefulness of noncompete agreements for some time. Some states, like California, already prevent employers from enforcing them.
Most recently, the Federal Trade Commission has proposed a federal ban on all noncompete agreements that could potentially prevent employers from signing new agreements with workers and also from enforcing existing noncompete agreements. As a result, some businesses have started to reconsider their use of noncompete agreements.
Including provisions that the courts will not uphold in your contracts can lead to a false sense of security for your organization and also may leave you vulnerable to misconduct by employees in the future if those terms are no longer enforceable.
Some businesses have already begun transitioning away from noncompete agreements in favor of other, less notorious restrictive covenants. Others are seeking to change how they structure their business operations so that individual employees will have less of an opportunity to glean valuable information and then unfairly compete against the company later.
Are your contracts outdated?
Employment contracts need to be thorough and up-to-date if they are to adequately protect your company. Staying aware of potential changes in employment law, like the possible federal ban on non-compete agreements, can help companies know when it is time to revise their existing contracts and potentially negotiate new agreements with their existing workforce.