Break Away From The Pack

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Will federal rules soon free workers from noncompete agreements?

by | Mar 5, 2023 | Employment Matters

Those who have achieved success in the financial industry are often in a position to negotiate better compensation packages than those with average performance and those who are new to the profession. Unfortunately, the best and brightest in the financial field often end up severely limited in their professional pursuits because the best job offers all come with noncompete agreements attached. Although California does not enforce such agreements, many other states still do.

A professional at the height of their career and dreaming of breaking away from their employment arrangement to start their own company may not be able to do so without risking aggressive enforcement actions. Especially if their employer is technically incorporated in another state, they could face litigation over starting their own business even if they reside in a state where such agreements are generally unenforceable.

However, there’s hope on the horizon for those bound by noncompete agreements in the form of changing federal policy. What might soon limit the consequences for those who wish to start their own firms?

The Federal Trade Commission may opt to ban noncompete agreements

Noncompete agreements have received a lot of negative press in recent years, especially in California where such agreements are not enforceable. However, there are no federal rules currently prohibiting the use of noncompete agreements, which means that the rules for such restrictive clauses vary from state to state.

The Federal Trade Commission (FTC) recently issued a statement indicating that noncompete agreements curtail fair competition and innovation and should therefore no longer be part of standard employment contracts. The United States Chamber of Commerce countered this statement, insisting that a lawsuit would follow any federal attempt to ban noncompete agreements.

There could eventually be a major announcement that will free thousands of skilled workers from restrictive covenants in their employment contracts.

Professionals pursuing their dreams must do so carefully

Former employers often do not take kindly to workers that become competition. They may pursue litigation against former employees to both curtail their business endeavors and impose financial penalties.

Financial professionals hoping to expand their own careers often need guidance to avoid violating their contracts or any applicable laws during this complicated process. They may also need to limit their operations to California until a noncompete no longer applies or until the federal guidance concerning such restrictive covenants changes.

Cooperating with an attorney while transitioning from an employee position to serving as an entrepreneur starting their own firm can benefit those who are hoping to turn their initial professional success into a new business venture.