Non-Compete Agreements

08.23.2024

Author:  Attorney John R. Orton

A “non-compete agreement” is a legal contract between an employer and an employee that prevents the employee from competing with the employer after their employment ends. Non-competes can prohibit employees from doing such things as: (1) working for a competitor, (2) opening a competing business, (3) taking clients from the old employer to a new employer, or (4) disclosing trade secrets or other proprietary information learned while working for the old employer.  Non-compete agreements usually specify a geographic territory to which they are applicable, and usually specify a time period during which the employee is restricted from competing with the employer.

Many employers believe that non-compete agreements are needed to protect their list of customers, their trade secrets, and the other sensitive information which the employee learns during the course of employment.  Without this protection, employers fear that an employee could steal valuable information and pass it on to a competitor or use it to start their own competing business.

Many employees believe that many non-compete agreements are unnecessary because many employees do not have access to important information which needs protection.  They believe that some employers over-use these agreements, which can force workers (1) to stay in jobs they don’t want, (2) to relocate to new communities to avoid the geographic restrictions of the agreement, or (3) to leave the workforce altogether until the agreement expires.

Non-compete agreements have been in the news lately.  The Federal Trade Commission (FTC) recently issued a rule banning non-compete agreements in the United States for most American workers.  Most States, including Wisconsin, have rules regulating non-compete agreements.  The FTC’s new rule would supersede all state laws on non-compete agreements. It was scheduled to take effect on September 4, 2024.

Shortly after the FTC announced this new rule, several lawsuits challenging the new rule were filed   Last week, a federal judge in Texas determined that the FTC cannot enforce its near-total ban on non-compete agreements and concluded that the final rule is “unreasonably overbroad without a reasonable explanation.” The Court further ruled that the ban was “arbitrary and capricious,” and an unauthorized overreach by the FTC.

For now, existing non-compete agreements are unaffected by the FTC rule. It will be several months (perhaps years) before we get a final decision as these cases work their way through the court system.

In the meantime, if you are wondering whether your non-compete agreement is enforceable under Wisconsin law, please contact our office.  We would be happy to review your agreement.