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FTC Bans Non-Compete Agreements! What Freelancers & Business Owners Need to Know

Heads up small business owners and freelancers - there’s a significant change on the horizon that could impact how you navigate your careers and business strategies. The Federal Trade Commission (the "FTC") has announced a new rule that bans noncompete clauses. Let's delve into what this means for you.

Two people at a job interview, one person is taking notes and the other is looking at a resume.

First, What is a Non-Compete Clause?

Non-compete clauses are classified in a group of contract clauses that the legal industry calls "restrictive covenants," because of their nature to restrict a party from certain rights they might originally have. Non-compete clauses have traditionally restricted employees from joining competing employers or starting similar businesses soon after leaving a company. These types of clauses are inherently burdensome on employees or contractors that find these clauses in their agreements for work.

Non-compete clauses are different from Non-Disclosure Agreements ("NDAs"), which are essentially used for confidentiality purposes. These are meant to protect sensitive business information, or otherwise confidential or proprietary information held by a business. These may be implemented for the free exchange of information and open communication between parties, necessary for the relationship to persist.

Furthermore, non-compete clauses are different from Exclusivity Clauses, which require the party agreeing to them to work only for one business during their contract term. These pop up occasionally in employee agreements, and are often negotiated into contractor agreements. These may also be popular in endorsement agreements by athletes, influencers, or content creators. Which makes sense. We don't expect Lebron James to be paid by Nike to endorse its brand, and also do the same for Adidas.

Instead, Non-Competes restrict employees and contractors from seeking opportunities with competing businesses, or starting competing businesses, AFTER their employment ends.

What's Going to Happen Now With the FTC's Ban?

The FTC's new rule is putting an end to noncompete clauses, for good. This means that preexisting non-competes will be voided, and future non-competes prohibited in contracts! Employees will no be able to switch jobs or start their own ventures without the fear of legal repercussions from their employer who originally had them agree to some sort of non-compete agreement. It really is a game changer for fostering a competitive, dynamic business environment. Expect to see innovation soar! With over 8,500 new businesses predicted to pop up each year, the marketplace will be buzzing. If you're a business owner that has used non-competes in the past to help retain talent, this could be your chance to rethink how you attract and keep top talent.

Key Takeaways for Small Business Owners and Freelancers

The rule becomes effective 120 days after its official publication. Use this time to adjust your business practices and strategies accordingly. It's crucial to revise any existing contracts that contain non-compete clauses, and inform your team or any independent contractors that these clauses in their agreements are now void, and won't be enforced going forward.

If you're on the employee or contractor side, this is a win! Now you'll be able to seek employment or entrepreneurship freely after your work with your current employer terminates!

Navigating regulatory changes like these can be complex, but you don’t have to do it alone. As experienced small business lawyers, we’re here to help you understand the implications for your business or freelance work and ensure your contracts are up to date, and your operations compliant. Need guidance or have questions about how this impacts you? Reach out to us for expert advice tailored to the unique needs of small business owners and freelancers. Let’s make sure you’re set up for success in an ever changing regulatory environment!

*Disclaimer: The above information is for general educational purposes only. Nothing in this blog article should be taken as legal advice. Reading this article does not form an attorney-client relationship with us. An attorney-client relationship is formed through a signed engagement agreement. If you would like further information, we would love to help you out! Feel free to reach out with any questions or schedule a free consultation with us through our booking calendar.

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