FTC Bans Noncompetes – What this Means for Owners of Construction Contracting Businesses
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The Federal Trade Commission (FTC) has recently issued a rule banning non-compete agreements for most employees, significantly impacting construction companies. An estimated 30 million Americans are subject to a noncompete to prevent them from leaving one company and immediately going to work for a competitor.
Scope of the Rule:
Non-compete agreements are now prohibited for employees earning less than $151,164 annually, the Department of Labor's 2025 salary threshold for "highly compensated employees." For those earning more, non-competes are only valid for senior executives with policy-making authority, and even then, new agreements can't be formed or enforced.
Rationale Behind the Rule:
FTC Chair Lina M. Khan highlighted that non-compete clauses suppress wages, stifle innovation, and hinder the creation of new businesses. The FTC estimates the new rule will increase average worker earnings by $524 annually and lower healthcare costs by up to $194 billion over the next decade. Additionally, it could spark innovation, leading to an estimated 17,000 to 29,000 more patents each year for the next decade.
Business Sale Exemption:
Non-competes tied to a business sale will remain enforceable under the new rule. But keep in mind, while a business owner can agree to a noncompete, they cannot do so on behalf of any employees.
Impact on Construction Businesses:
Companies must notify past and present employees within 120 days that their non-competes are unenforceable. Non-solicitation, non-recruitment, and non-disclosure agreements are permissible, as long as they don't effectively act as non-competes.
Legal Challenges:
Multiple state and federal lawsuits against the FTC's authority to implement this ban have been filed, and these proceedings could influence the rule's implementation.
Next Steps:
For now, refrain from notifying employees until closer to the 120-day deadline, currently estimated to be around August 21, 2024. The rule's future remains uncertain, but we'll monitor developments and provide updates.