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Texas businesses must prepare for the end of non-compete clauses

On Behalf of | May 29, 2024 | Business Law

In the past, businesses in Texas could protect their interests through the use of non-compete agreements. These agreements, often in the form of a clause within an employment contract, limit an employee’s right to work for a competitor. Now that the Federal Trade Commission has done away with these agreements, lawsuits are being filed to prevent their elimination. Two filings were in the Lone Star State. While there is always a chance that litigation will be successful, it remains incumbent upon businesses to be ready for the new landscape.

Lawsuits strive to save non-compete clauses

The U.S. Chamber of Commerce filed one of the lawsuits using the logic that banning non-compete clauses will create an unfair playing field with competition. It says that since there was no mandate from Congress and the FTC should not be able to put this law into effect as it directly impacts so many businesses and how they operate. The argument goes that the FTC would be able to interfere with other longstanding business practices that have been relied upon.

The objective is to secure a preliminary injunction to stop the law from going into effect as the lawsuits proceed. Currently, the law is not expected to begin until around September. If, however, the courts see it the plaintiffs’ way, then it could be delayed indefinitely. Employers might face challenges if they keep trying to use non-compete clauses while the cases are being litigated.

According to the FTC, just because non-compete clauses are coming to an end, it does not mean that businesses will be devoid of options to protect themselves. Alternatives include non-disclosure agreements and basic trade secret laws. It is believed that an overwhelming percentage of workers who have a non-compete agreement also have an NDA.

Looking at it in a positive frame, workers who are not “trapped” in their current job because they cannot leave and work for a competing company in the same industry nor can they start their own business without moving far enough away to avoid violating the non-compete clause may feel happier and more productive. Employers could find ways to better compensate their workers and avoid them wanting to leave in the first place.

Businesses must be ready for the new protocol

Despite these lawsuits, it is wise for businesses to know what to expect once the non-compete clauses are gone. There are alternatives they can explore to keep productive employees and prevent them from leaving. Since this area of the law is happening in real time and can be somewhat confusing, it is vital to have a grasp of what the future could hold without the non-compete agreements being used as a protective device. Thinking about the future requires being innovative. Having help with understanding business law is always beneficial.