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What does the new FTC ruling on noncompetes mean for business litigation?

On Behalf of | Jun 3, 2024 | Commercial Litigation |

What does the new FTC ruling on noncompetes mean for business litigation?

The business landscape is set to shift significantly due to a new rule from the Federal Trade Commission (FTC). This rule targets noncompete agreements, which many Louisiana employers have used for decades to protect their trade secrets and other confidential information as their executives and other employees come and go. If enacted, the FTC’s new rule would prohibit most such employment agreements.

Details of the FTC’s noncompete ruling

As the Associated Press reports, the FTC voted to eliminate noncompete clauses, which currently impact roughly one in five workers in the U.S. These clauses have historically been associated with high-level executives, particularly in the tech and finance sectors. However, they have increasingly applied to workers in a broad range of industries and income levels, including those in low-wage positions.

The FTC argues that noncompete agreements stifle workers’ ability to pursue better opportunities and suppress wage growth. They also suggest that such agreements reduce job market fluidity, affecting those directly bound by noncompetes and indirectly impacting other workers by limiting the number of available positions.

Legal challenges and business concerns

The rule is poised to take effect in four months unless any legal challenges arise. That seems likely, as the U.S. Chamber of Commerce has already promised to sue to try to stop the change. The business community generally has voiced strong opposition. Critics argue that the sweeping nature of this ruling could potentially harm businesses that rely on noncompetes to protect trade secrets, client lists and other information that keeps them competitive. Some business owners are concerned about the potential for former employees to transfer sensitive information to competitors.

What this means for Louisiana business owners

Louisiana business owners must now consider how this ruling could affect their operations. Protecting proprietary information without noncompete agreements may require new strategies. Business litigation could see an uptick as companies seek to safeguard their confidential data through other legal avenues.

In light of these changes, business owners may need to reassess their employment agreements and company policies. Consulting with a business litigation attorney can provide clarity and assistance in navigating this new legal landscape.

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