Employment-related litigation often begins with an employee’s concerns or misconduct. Many lawsuits are filed by workers and target businesses based on allegations of misconduct. Workers sue over unpaid wages or harassment in the workplace and expect their employers to provide them with compensation.
In a handful of circumstances, employers can sometimes pursue litigation against a current or former employee. One of the most common reasons for businesses to take legal action against individual workers relates to contract violations. Employers typically include terms in employment contracts that protect them from the theft of trade secrets and other forms of worker misconduct.
Restrictive covenants in employment contracts can limit what a worker does even after they leave a job. Noncompete agreements are common restrictive covenants that prevent employees from going to work for a competitor or starting a competing business. There has been a lot of attention paid to noncompete agreements recently.
Can employers still enforce non-compete agreements?
A judge just ruled against the federal ban
Noncompete agreements are legal in most states but were recently the subject of a new federal rule. The Federal Trade Commission (FTC) helps govern business operations in the United States. Early in 2024, the FTC announced a new final rule effectively banning noncompete agreements in employment contracts.
That ban did not just apply to new contracts executed after the announcement of the rule but also to existing contracts signed possibly years before its announcement. Before the rule actually took effect, however, multiple lawsuits challenged the new rule.
A federal court judge in Texas recently issued a ruling declaring that the FTC exceeded its authority by implementing this new final rule. In other words, the noncompete ban is currently unenforceable. Employers can still include noncompete agreements in their employment contracts. They can also enforce existing ones if workers try to leave the company and engage in unfair competition.
It is worth noting that this failed attempt to ban noncompete agreements is unlikely to be the last effort to limit them. Many employers may need to start exploring alternate means of limiting unfair competition and protecting their trade secrets.
For the time being, companies can initiate a lawsuit against a worker who has signed a contract with a noncompete agreement and then violated the terms of that agreement. Tracking changes to employment rules can help companies protect themselves by avoiding illegal activity and fine-tuning company practices as the law evolves.
