Changes May Be Coming for Noncompete Agreements

10.18.2024

Author:  Thomas J. Casey

A Noncompete Agreement (sometimes referred to as a “restrictive covenant”) is a contract that prohibits an employee from working for a competitor within a given time and a given geographic distance.  Noncompetes are often used to ensure that a company’s information is kept private and the employee does not seek employment with a company’s competitor.  Noncompetes can also restrict the movement of a former employee for a finite period of time and specific geographic area.

In April of 2024, the Federal Trade Commission (“FTC”) issued a rule to promote competition by banning noncompete agreements nationwide.  The stated reasons behind the ban were as follows:

  • Noncompete clauses keep wages low
  • Noncompete clauses suppress new ideas
  • Noncompete clauses rob the American economy of more than 8,500 new startups a year

The ban was supposed to ensure Americans have the freedom to pursue a new job, start a new business and bring a new idea to market, according to FTC Chair Lina M. Khan.

The new rule was expected to:

  • Lead to new business formation growing by 2.7%/year
  • Result in 8,500 new businesses being created each year
  • Result in higher earnings for workers with estimated increases of $524.00 per year on average
  • Result in lower health care costs by up to $194 billion over the next decade
  • Drive innovation with an estimated average increase of 17,000 to 19,000 more patents each year

On August 20, 2024, a U.S. District Court in Texas issued an order stopping the FTC from enforcing the rule banning Noncompetes.  Until further Court order, or perhaps Congressional action, existing noncompete agreements will remain in place.  It is expected that this ruling will be appealed by the FTC.

Under Wisconsin law, there are some limitations on the enforcement of noncompete agreements.  To be enforceable in Wisconsin, a noncompete agreement must:

  1. Be necessary for the protection of the employer. That is, the employer must have a protectible interest justifying the restrictions imposed on the activity of the employee.
  1. Provide a reasonable time limit.
  1. Provide a reasonable geographic limit.
  1. Not be harsh or oppressive to the employee.
  1. Not be contrary to public policy.

If you are asked to sign a Noncompete Agreement you must read it over carefully.  Be sure to understand how you will be constrained when you leave your current job – whether you quit, get laid off, or are fired for cause.

Also be sure to understand how the agreement defines a competitor and how the location of competitors is defined.  Consider your line of work.  If it is likely that you will grow out of your current position and will seek new employment, think twice before signing a noncompete.

If you are faced with signing a Noncompete Agreement, you may want to discuss the circumstances with an attorney before signing.  The attorneys at Curran Law Office are able to assist you in making the right decision.