On August 20, 2024, a federal judge struck down the FTC rule banning non-compete agreements. U.S. District Court Judge Ada Brown held that the FTC lacks the authority to issue the rule. Her ruling means that non-compete agreements are fully enforceable consistent with state laws. Businesses are not now required to make any changes to their agreements by September 4, as the rule required. The ruling is here.
In short, the status quo regarding non-compete agreements will remain in place for the foreseeable future. Ohio non-compete agreements that are drafted narrowly to protect an employer’s legitimate interests may be enforced. However, employers operating in multiple states need to know that non-compete agreements are unenforceable in several states and subject to numerous limitations in many other states.
But, even where enforceable, employers should limit non-compete agreements in several important ways. First, only bind employees who can unfairly compete absent such a restraint. This typically requires that the employee possess trade secrets or confidential information that they will use unfairly in competition. Second, define the meaning of prohibited competition as closely as possible with respect to restricted work, location, and competitors. Third, limit the duration to the shortest time possible to prevent unfair competition.
The less burdensome the non-compete restriction is, the more likely it is to be enforceable. Additionally, employees in competitive markets will be less likely to accept positions with onerous and lengthy non-compete obligations.
Finally, well drafted confidentiality and non-solicitation agreements are often sufficient to protect the employer’s interests. And confidentiality agreements are almost universally enforceable and should be in place for nearly all employees.
If you have any questions or need further guidance, please don’t hesitate to call us at 216-621-7860. We’re here to help.