How Businesses Can Deal With the FTC Ban on Noncompetes

A recent action by the Federal Trade Commission (FTC) purports to make illegal any contract whereby an
employee agrees not to enter into competition with the employer during or after the employment
period. Noncompete agreements typically restrict the employee from joining a competing firm, starting
a competing business or sharing proprietary information within a certain geographic area and for a
specified time period.

The FTC rule announced in April 2024 bans most noncompete agreements in employment contracts
across the United States. This rule aims to eliminate barriers to worker mobility, enhance competition,
and promote innovation by preventing employers from limiting employees' future employment
opportunities. The regulation not only applies to future noncompete agreements but also requires the
rescission of most existing ones, compelling employers to notify workers that their noncompetes are no
longer in effect.

Before this rule, noncompete agreements were subject to state laws, which varied significantly. In
Kentucky, for instance, noncompetes were enforceable if they were reasonable in scope, duration and
geographic area. Courts would typically uphold these agreements if they were necessary to protect
legitimate business interests, such as trade secrets or goodwill. Ohio had similar requirements,
emphasizing that noncompetes must be no broader than necessary to protect the employer's legitimate
interests, must not impose undue hardship on the employee and must not be injurious to the public.

With the FTC's new rule, the enforceability of noncompete agreements will undergo a fundamental
shift. While the rule broadly prohibits noncompetes, it does allow for some exceptions, particularly in
the sale of a business where the restriction may be necessary to protect the value of the sold business.
However, these exceptions are narrowly defined, and the general presumption under the new rule is
against the enforceability of noncompetes. Employers in Kentucky, Ohio and other states will need to
reassess their employment agreements to ensure compliance with federal law.

In the new regulatory landscape, businesses are encouraged to explore alternative means of protecting
their interests, such as nondisclosure agreements (NDAs) and non-solicitation agreements, which are
not covered by the FTC's ban and can still be used to prevent the misuse of confidential information and
the poaching of clients or employees. A business contracts attorney experienced with restrictive
covenants can advise you about provisions suitable for your company’s needs.

Hemmer Wessels McMurtry PLLC assists companies in Kentucky and Ohio with the development and
enforcement of business agreements. To schedule a consultation, call our Fort Mitchell firm today at
859-344-1188 or contact us online.