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Non-compete clauses: Destined for obsolescence?

On Behalf of | Oct 2, 2023 | Contract Disputes

Non-compete clauses are commonly found in employment contracts. They restrict employees from working for competitors or starting similar businesses for a certain amount of time after leaving a business or organization.

These clauses protect businesses from threats from former employees, particularly those who know confidential information or trade secrets.

More people oppose non-competes today

Over the years, there has been a noticeable shift in how people feel about non-compete clauses. Critics argue that they stifle innovation, hinder employee mobility and can harm a competitive market. 

Some states, like California, have already taken legislative action to deem these clauses unenforceable in most cases. With changing public opinion and legal standpoints, it’s plausible that non-competes may become less common in employment contracts.

New legislation coming in 2024

The FTC (Federal Trade Commission) is set to vote in April 2024 on legislation that would ban non-compete clauses across the country. Those who support this state that it will improve free trade and remove unfair restrictions on employees. It is also expected to increase wages by almost $300 billion annually. 

The impact on businesses

The non-compete clauses used by businesses today are not overly restrictive. The terms are specific and only remain valid for a designated time period. Also, they protect business owners and ensure they do not lose the secrets that have led to their success. 

There are many businesses that have stopped using non-compete agreements and California has already banned them. However, for businesses that are using them, they should stay updated with the legislative action. In April, the vote will determine if the non-compete clause will be kicked out for good. For some business owners, it may be a good idea to learn about other legal protections in place.