Can You Enforce Non-Compete Clauses in West Virginia?
The original motivation behind a non-compete clause in an employment contract is sound. It simply states that an employee can’t leave one company to work with a direct competitor and take with them proprietary information. Most non-compete clauses have a predetermined time limit. However, the Federal Trade Commission (FTC) recently announced a new rule that is a seismic shift for the enforcement of non-compete clauses in West Virginia and the rest of the country.
As of April 23, 2024, the FTC has implemented a ban on non-complete causes in new contracts. They also have restrictions on preexisting contracts. This rule impacts every company that has these clauses in their contracts. It is important to understand how these changes can impact your employee contracts.
A Minor Loophole
The final FTC non-compete ruling preserves existing non-compete clauses for senior executives. These are upper management positions with an annual salary above $151,000. That executive must also be in a policy-making position. Additionally, if there was already a cause of action taken against an employee for a breach of the non-compete clause before the April 23, 2024, start date, that case can proceed. However, moving forward, non-compete clauses cannot be part of a new employee contract.
No Enforcement
According to the new FTC rule, a preexisting non-compete clause in a contract is no longer enforceable for all the employees who aren’t in a policy-making position with the higher salary mentioned above. The company is also responsible for informing the employees of this rule change as it applies to contracts with the clause. In other words, an employer needs to tell the employee who signed the contract that they are no longer bound by the non-compete clause.
The non-compete clause ban extends beyond full-time employees. It also covers the following:
- Independent contractors
- Interns
- Volunteers
- Apprentices
- Sole proprietors who perform services for a company or individual
Business Protection
While the ban on non-compete clauses will no longer prevent an employee from working with a competitor, businesses can still enact clauses to protect their interests. For instance, the FTC has not made any changes to trade secret laws and non-disclosure agreements (NDAs).
It might seem that a non-disclosure agreement is the same as a non-compete clause. However, the FTC clarifies that “a non-disclosure agreement would not be a non-compete where its prohibitions on disclosure do not apply to information that (1) arises from the worker’s general training, knowledge, skill or experience, gained on the job or otherwise; or (2) is readily ascertainable to other employers or the general public.”
For instance, an employee of Kentucky Fried Chicken can quit and go to work for Popeye’s Chicken, but they can’t reveal KFC’s secret recipe of 11 herbs and spices. However, they could use information such as the optimum temperature for frying chicken at their new job.
Challenges
The new ruling supersedes any preexisting state law. As you might expect, there will be legal challenges. For instance, a federal judge has already issued a preliminary delay on the rule taking effect until September 4, 2024. There will most likely be more attempts to challenge the law. It is essential for businesses to follow the news out of the FTC.
New Actions
Even with pending challenges, businesses need to take a proactive approach to these changes. For instance, it would be advisable to update your company’s existing employee contracts to remove the non-compete clause. You also have to review any non-disclosure provisions that could fall under the rule.
On the other hand, you should also consider enhancing your trade secret protection (if applicable). You need to determine exactly what you consider to be proprietary information and what practices employees must follow to keep that information safe. For instance, you might need to rethink your company’s onboarding and offboarding policies regarding training and other company information.
Finally, consider adopting more vigorous employee retention policies. These can include things such as bonuses and deferred compensation plans. If an employee becomes invested in the company’s success, there is less incentive to have them move on to a competitor.
Contract Reviews
As with any significant change in FTC regulations, a top-to-bottom review of employee contracts will be required to deal with the new non-compete clause rule. The Hendrickson & Long, PLLC team has been following the changes carefully and can help your company update your contracts and formalize the employee notifications. Call to set up a consultation to get all the current information.
