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The Legal Status of Non-Compete Agreements – Episode 442

Adam Talks

On this episode of Adam Talks, tax attorney and IRA Financial’s founder, Adam Bergman, Esq., discusses non-compete agreements and the impact new legislation could have on business-employee relationships.

The Legal Status of Non-Compete Agreements

This podcast, hosted by tax attorney Adam Bergman, discusses the recent developments regarding non-compete agreements in the United States, particularly focusing on the Federal Trade Commission’s (FTC) final rule expected to take effect on September 4, 2024, which bans most non-compete agreements between employers and workers. Bergman explains that the FTC considers non-competes as unfair methods of competition that restrict employees from earning income and pursuing their professions freely. The new rule is monumental for businesses and employees alike, as it represents a significant shift in the employment landscape.

Adam delves into the historical context and legal debates surrounding non-compete agreements, highlighting how they have been used by employers to prevent former employees from working in the same industry or geographical area for a certain period. He notes that these agreements have often been contested in courts, with varying outcomes depending on their scope and the professions involved. The FTC’s final rule aims to alleviate the burden on employees, allowing them more freedom to seek employment and earn a living.

Bergman warned us about this last year – Will Non-Competes Become Illegal?

The episode also explores the exceptions to the final rule, specifically for senior executives earning over $155,000 and for agreements made before September 4, 2024. Bergman mentions ongoing lawsuits seeking a temporary stay against the FTC’s rule, with a critical decision expected from the US District Court of the Northern District of Texas by July 3, 2024. Employers are advised to begin planning for the rule’s implementation, including notifying former employees that existing non-compete agreements will no longer be enforceable.

Bergman discusses alternative legal tools that employers might use to protect their business interests, such as non-solicitation and non-disclosure agreements. He speculates that these agreements could become more prevalent as substitutes for non-competes, though they must be carefully drafted to avoid being construed as de facto non-competes. Non-solicitation clauses that are too broad and prevent a worker from seeking or accepting employment could still face legal challenges.

The implications of the FTC’s rule are far-reaching, impacting how businesses hire and retain talent, particularly in industries like technology where non-competes have been stringent. Bergman provides examples of how non-competes have affected individuals, like a colleague restricted from selling pension plans in his area for two years. He underscores the necessity for businesses to adapt to the new regulatory environment while balancing the need to protect their interests.

In conclusion, Bergman emphasizes the importance of staying informed about the FTC’s rule changes and the potential consequences of non-compliance, such as fines and injunctions. He anticipates further legal challenges and updates in the coming months and advises both employers and employees to understand their rights and obligations under the new regulations. The podcast serves as a critical resource for anyone affected by or interested in the evolving landscape of non-compete agreements.


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