In April 2024, the Federal Trade Commission issued a final rule banning almost all noncompete clauses nationwide. As you may already know, a noncompete clause is typically part of a larger employment agreement between a worker and employer and essentially prevents a worker from competing with their employer after their employment ends. In the construction industry, noncompetes have historically been used to protect companies’ investments in their skilled workforce and proprietary information. Many employers in the construction industry utilize employment agreements that contain noncompete clauses along with non-disclosure and non-solicitation agreements to protect their business interests.
The final rule will become effective September 4, 2024, subject to pending legal challenges. On or after this effective date, it will be a violation of the Federal Trade Commission Act for employers to enter into noncompetes with employees or independent contractors. For existing noncompetes, only noncompetes with senior executives will remain in force. The final rule also requires employers to provide notice to any workers subject to an existing noncompete agreement that the agreement will no longer be enforced.
It is important to note that the final rule states that it will supersede any state law that is inconsistent with the final rule. In Nebraska, case law exists governing the enforceability of these agreements between an employer and an employee. For example, Nebraska case law currently allows customer-based restrictions that prohibit an employee from working for, accepting business from, or being employed by customers with whom the employee did business and had personal contact.
Although the final rule does not directly address the use of non-disclosure or non-solicitation agreements, the broad definition used for a noncompete clause presents the possibility that some currently enforceable agreements in Nebraska may require further analysis and review in light of the final rule. Specifically, the definition of a noncompete clause includes any contract term that functions as a noncompete. Accordingly, it is unclear whether Nebraska courts will determine that a previously enforceable customer-based restriction has the same functional effect as a noncompete and thus, is now prohibited under the final rule.
Takeaway For Employers:
Follow the pending legal challenges to see if/ when the final rule becomes effective.
Provide notice to any workers subject to existing noncompetes (with the exception of senior executives) if/ when the final rule becomes effective.
Review existing employment agreements in light of the final rule and if necessary revise if/ when the final rule becomes effective.
If you would like help with your employment agreements, we are here to help out.
