by Chris SwiecickiWhat to Do Now that the FTC Has Outlawed Noncompete Agreements
The Federal Trade Commission (FTC) recently issued a “final rule” that bans noncompete agreements for employees, making them largely unenforceable. This new regulation significantly impacts how businesses can protect their interests, as noncompetes have traditionally been a common tool to prevent employees from joining competitors or starting rival businesses.
However, companies still have effective strategies to safeguard their trade secrets, client lists, and other confidential information. Here is some practical advice on maintaining a competitive edge while complying with the new legal landscape.
Understanding the FTC’s New Rule on Noncompetes
The FTC’s new rule banning noncompetes marks a significant shift in employment law by banning noncompete agreements for most employees. Noncompetes are clauses in employment contracts that restrict employees from joining a competitor or starting a similar business within a specific timeframe and geographic area after leaving their job. Companies traditionally used these agreements to protect sensitive information, prevent talent poaching, and safeguard their market position. Noncompetes aimed to reduce the risk of intellectual property theft and loss of clients to competitors by limiting an employee’s ability to work in similar roles.
However, critics argue that these agreements stifle competition, limit employee mobility, and suppress wages. The new FTC non-compete ban, therefore, seeks to enhance economic mobility and job market competitiveness by rendering most noncompete agreements unenforceable, particularly for non-executive employees. This change requires businesses to explore alternative methods for protecting their interests without relying on noncompetes.
Protecting Trade Secrets and Intellectual Property
With noncompete agreements no longer enforceable, businesses must turn to other legal protections to safeguard their sensitive information. Trade secrets—confidential business information that provides a competitive edge—remain protected under the law, even after an employee leaves the company. Companies can still take legal action if a former employee misuses or discloses these secrets. To reinforce these protections, businesses should ensure they have strong internal policies and employee training programs on confidentiality and data security.
Implementing robust nondisclosure agreements (NDAs) can also help protect valuable information, as NDAs expressly prohibit employees from sharing confidential information with competitors or using it to their advantage. Additionally, careful management of digital access to proprietary information, including client lists, can further prevent unauthorized use or dissemination. By focusing on these safeguards, businesses can continue to protect their assets in a post-noncompete landscape.
Alternatives to a Noncompete Agreement
With the new rule banning noncompetes, businesses need to have a strategy for protecting key trade secrets and client lists.
One of the best alternatives to a noncompete agreement for businesses is the nonsolicitation agreement. Nonsolicitation agreements prevent former employees from enticing clients or other employees to leave the company and join a competing business. Unlike noncompetes, which broadly restrict where an employee can work, nonsolicitation agreements are more focused, explicitly prohibiting actions that could harm a company’s relationships and revenue.
These agreements are often easier to enforce in court, as they target specific competitive behaviors rather than general employment. To maximize their effectiveness, businesses should clearly define the scope and duration of nonsolicitation agreements, specifying which clients and employees are off-limits and for how long. By implementing well-crafted nonsolicitation agreements, companies can protect their client base and talent pool, ensuring that former employees do not undermine a company’s hard work by stealing away clients and employees.
In the absence of noncompete agreements, fostering a positive workplace culture and enhancing employee retention has become even more critical for businesses. Companies can reduce turnover and minimize the risk of losing valuable talent to competitors by focusing on employee satisfaction and engagement. Strategies to boost retention include offering competitive salaries, robust benefits packages, and career development and advancement opportunities.
Creating a supportive work environment that values open communication, recognition, and work-life balance can also significantly enhance employee loyalty. Investing in these areas helps retain top talent and builds a more committed and motivated workforce. Companies prioritizing employee well-being are more likely to foster a sense of loyalty and commitment, reducing the need for alternatives to a noncompete agreement. In a market where talent mobility is increasing, focusing on retention and workplace culture can be a powerful supplement to traditional noncompete strategies.
Legal Compliance with the FTC Noncompete Ban
With the FTC noncompete ban businesses must stay informed about the evolving legal landscape to ensure compliance and avoid potential pitfalls. Regularly reviewing and updating employment contracts and policies to align with the latest regulations is essential.
Companies should seek guidance from legal professionals to navigate these changes effectively and develop new strategies for protecting their interests without relying on noncompete clauses. Additionally, staying informed about state-specific regulations, which may have different requirements and interpretations of employment law, is critical.
Leveraging legal resources, such as workshops, webinars, and legal counsel, can help businesses stay ahead of regulatory shifts. Noncompliance can lead to costly legal battles and damage a company’s reputation, so proactive legal management is key. By remaining vigilant and adaptable, businesses can protect their proprietary information and maintain their competitive edge even as regulations change in unforeseen ways.
How Swiecicki & Muskett Helps with Noncompete Agreements
Finding the best alternatives to a noncompete agreement depends on context—specifically, a company’s needs, the relevant laws based on location, and the industry in which you operate. Failing to account for that context can lead to your hard-earned clients and trade secrets going unprotected.
At a large law firm, you might get passed between junior attorneys trying to minimize the time they spend on your case, and they may never fully understand the full context needed to keep you safe. At Swiecicki & Muskett, we assign you a single attorney who is with you every step of the way, and who will take the time to get to know your company and industry. With a specialty in contract law, we have ample experience helping companies ranging from small to Fortune 500 protect their interests. For a free, no-obligation consultation on your post-noncompete needs, contact us today!
* Cover photo by RDNE Stock project via Pexels
by Chris SwiecickiWhen is the Right Time to Bring in an Attorney for a Business Contract?
Every business, no matter how small, will eventually need to enter into some type of transaction that requires a formal contract. Small business owners may be tempted to draft a contract themselves or choose from online sources that promise easy-to-use contract templates. They may not feel the need to involve an attorney unless something goes wrong.
While we understand the desire to save time and money with a DIY approach, a one-size-fits-all solution can not possibly capture the nuances of every unique business transaction. There are very good reasons for contacting an attorney early in the process rather than waiting until there is a dispute, even if only for a quick review. Understanding when it’s best to involve a professional will help prevent errors, misunderstandings, or omissions that can lead to costly outcomes.
Four Key Times to Involve an Attorney
Unless a business is big enough to have its own legal department or a corporate attorney on retainer, the question of when to bring in an attorney for a business contract is bound to come up eventually. Even in-house counsel sometimes brings in an outside specialist. Some contracts might need the expertise of a patent lawyer or tax attorney, for example.
While having a lawyer draft or review every single contract might mitigate the majority of risk for a company, it isn’t always feasible—or necessary. Executing simple contracts like a bill of sale or a standard lease agreement may not require a professional’s help.
In general, a more realistic answer of when to call an attorney is whenever a contract involves complex ideas or when the terms of the agreement have high stakes. For example, ironing out the complicated details of a merger or acquisition is something that definitely needs an attorney’s expertise. So does something like negotiating the terms of a licensing agreement for an invention. In both examples, a mistake in the contract could cost millions of dollars, lock one or both parties into an unfavorable situation, or put the company’s future at risk.
We have identified four times when it is in a business owner’s best interest to get professional contract help.
1. When Asked to Sign a Contract
When presented with a contract, the need to have a lawyer review it increases along with the stakes or dollar amounts involved. For example, a multi-year service level agreement with a retailer for your company’s product merits an experienced lawyer’s opinion. On the other hand, an agreement with an independent contractor for a single project in exchange for a set fee is fairly cut and dried.
Still, there is value in having an attorney review a contract to make sure there are no surprises. They can explain the terms so their client completely understands their rights and obligations as well as what will happen if one party does not meet their part of the bargain. If a business owner foregoes the help of a professional, there could be unanswered questions. For example, can the independent contractor in the above example be compelled to complete the work? When is payment due and what type of penalty or interest will be charged if it is not paid on time?
2. When You Want to Formalize an Agreement
An oral agreement can be legally binding. But you’ve probably heard the saying “A verbal contract is not worth the paper it’s written on.” Written contracts lay out the details of an agreement to avoid confusion and safeguard the interests of both parties in a court of law. As soon as it is evident that an agreement with another party needs more than a handshake and a promise, it is time to draft a formal contract.
As with #1 above, the need for an attorney will depend on the importance and complexity of the transaction. Hiring an attorney to draft the document will ensure that nothing is missed and that the terms have the intended results for both parties. As an alternative, a business owner could ask a lawyer to review and recommend changes to a document the business owner drafted.
Image by Pattanaphong Khuankaew from Getty Images Pro by Canva.com
3. When a Business Changes
The two previous examples involve new contracts. Existing contracts should be reviewed periodically, especially when either party undergoes a major change. For example, a company expanding its services to include delivery might consider tweaking the terms spelled out in its client contracts. Will they promise delivery in a certain time frame? Will there be an additional fee? What recourse does a customer have if they do not receive their items? A contract attorney can make sure the wording still represents the company’s best interests while covering all new considerations.
4. When a Market or Industry Changes
Just as with company changes, similar adjustments should be made to contracts when a business owner anticipates industry changes. Consider 2023’s labor dispute between the Writers Guild of America and Hollywood studios. The increased use of Artificial Intelligence in the industry triggered the WGA to demand changes in how their work was represented and compensated.
Similarly, any company might see changes ahead for the type of work it does. An experienced contract attorney can structure a contract and adjust its language to accommodate changes when necessary.
Pitfalls of a Poorly Drafted Contract
A good contract safeguards the rights and clarifies the obligations of both parties. A poorly drafted one, however, could result in a number of unpleasant outcomes. There could be few options in the case of a breach. A business might not get paid, may be forced to provide unanticipated products or services, or could end up in litigation.
All of these situations could end up more expensive and disruptive than hiring an attorney to draft or review the contract in question. By bringing in an attorney for a business contract—and bringing them in early in the process, business owners can rest assured that their contracts won’t have the following issues:
- Ambiguity. Every contract can be subject to interpretation, but clear, concise professional language will eliminate confusion.
- Not enforceable. Contracts must follow the laws of the jurisdiction to which they apply. For example, requiring a non-disclosure agreement from an employee in a state where NDAs are not legal, would not hold up in court.
- Omitting key points. Attorneys know how to close loopholes and will think of issues their clients might not anticipate. For example, adding an arbitration clause to a contract allows disputes to be handled out of court. And a termination clause gives parties a way out in certain situations.
- Unforeseen risks. Not considering a variety of eventualities can increase risk exposure. That said, a written contract naturally includes an Implied Covenant of Good Faith and Fair Dealing for both parties’ protection.
While any contract can suffer from issues that could lead to litigation, a professional contract attorney is less likely to make a mistake than a layman. Lawyers understand the meaning and implications of contract language and how the document should be structured.
What a Contract Lawyer Brings to the Table
Hiring a contract attorney puts business owners at an advantage over those trying to draft a document themselves. An experienced lawyer will take the time to understand their client’s goals and the purpose of the contract. They can prevent a business owner from entering into an agreement that does not serve the interests of the company, or worse, harms it.
It is important to find an attorney familiar with the local jurisdiction and who has participated in litigation when contracts are breached. This experience gives them the ability to craft a strong document that provides the assurances and protections the company needs.
A Contract Attorney Can Safeguard Your Business Interests
Whether a business contract is an occasional necessity or part of day-to-day operations, these documents and their contents should not be taken lightly. Errors, vagueness, or the exclusion of important points can lead to costly mistakes and even litigation. Often the expense and inconvenience are much greater for a company than hiring a lawyer from the start.
For all but the simplest agreements, contact an attorney who specializes in contract law like Swiecicki & Muskett. The higher the stakes of a transaction, the more important it is to get professional advice. The future of your business could depend on it.
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by Chris SwiecickiLooking for Business Contract Templates? Read This First
In the world of business, contracts keep transactions running smoothly. Contracts define the rights and obligations of the parties involved and provide the legal framework for business relationships. Online contract templates offer businesses an accelerated, often inexpensive way to get some legal coverage and ensure their interests are represented. After all, having a written contract is generally better than not, and having some legal protections is better than having none.
Still, there are potential shortcomings that online contract template sites don’t always disclose. Businesses need to be aware of these before they choose to gamble their business on a templated contract.
Where Online Contract Templates Fall Short
To be clear, I am not saying that online business contract templates always fail. If you have a small business and you need a contract for a simple, repeatable, common task, then an online contract might well cover all the necessary bases and be a valid approach. However, if there’s anything more complex about a business situation, be it the deal itself or something unique about your business structure or practices, it’s unlikely that a templated contract will adequately cover those unique facets. A good contract protects the interests of the business, especially when the other party acts in bad faith. Here are some specific areas where a contract template might not fully cover your business:
Risk Mitigation
Contracts are about more than rights and obligations. They can be powerful tools for risk management. However, risk isn’t universal. What might be non-risky for the average business could be an existential threat to yours. A templated contract is written with the average business in mind and may miss areas where your company is uniquely legally exposed. For example, all contracts expire or have a termination date at which point all provisions cease. Companies may need what’s called a “survival clause,” which continues after the contract’s expiration, and may cover things like confidentiality, indemnification, warranties, and intellectual property rights. Without having a lawyer draft or review your contract, you may inadvertently open yourself up to substantial risk.
Addressing Unique Needs
Of course, there’s more to contracts than risk. Every business has unique circumstances and goals, and contracts can help advance those. One of the most significant advantages of having lawyers write your contracts is the human element. Lawyers can get to know you and your business and ensure that the final contract is tailored to your specific needs. Not only does this result in a legally stronger contract, but it ensures that your contract is comprehensive and relevant and minimizes the potential for disputes in the future. For example, you may be selling a business but plan to keep a handful of customers for yourself after the sale. A standard online contract template might not cover this type of transaction.
Protecting Intellectual Property
If your company has any intellectual property (IP), such as patents, trademarks, or copyrighted work material involved in a project, then it’s a good idea to make sure that it’s protected. You don’t want to sign a contract that gives over your IP to another party—or even opens the door for a dispute. Even if you ultimately prevail in an IP case, handling one can be a huge distraction for your company, moving you from innovation and efficiency to a desperate fight to protect what’s rightfully yours. Given the range of what IP can include, from inventions and artistic works, to brand names and logos or trade secrets like formulas and practices, it’s uncommon for online contract templates to fully and effectively protect businesses in this area.
Legal Precision and Compliance
Like any legal document, contracts need to comply with relevant national, state, and local laws. Failure to comply could result in penalties or, in certain circumstances, render the contract null and void. So, while the contract you find online might be compliant in one jurisdiction or another, it might not be compliant in yours. For example, many states allow non-compete clauses in employment contracts, but they’re essentially outlawed in most cases in California. Even if an online template can handle that nuance, there’s a chance that laws have recently changed, and using outdated language can get you in just as much trouble. By hiring a lawyer, you can ensure that you’re getting a contract that’s up-to-date and compliant.
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Clarity and Avoidance of Ambiguity
One reason that many people use contract templates is that legal language can be dense and difficult to parse. It’s not that lawyers love big words, but rather that being clear and resolving ambiguity is critical for avoiding disputes and winning them if they do arise. Templates often use generic language, which may or may not be truly effective at ensuring clarity. Such generic language can actually increase the odds of a misunderstanding down the line.
Furthermore, your online contract template generator isn’t going to be able to advise you on the best path for negotiation and dispute resolution. In some cases, that might be arbitration or mediation, saving you time and money. In others, that might not be legally viable or not desirable for various reasons. No matter how good your online tool is, it’s never going to be able to understand the broader context in which a contract is being created, so it won’t be able to help you drive the outcomes that you’re seeking.
When to Enlist a Lawyer for Contracts
A theme in these shortcomings in online contract templates is that contracts aren’t one-size-fits-all. Instead, to be truly effective, they need to be customized to the specific circumstances at hand. That’s not to say that a failure to do so represents an existential threat to your company. In some cases, poor phrasing in a contract could lead to your business having to spend more time and money to complete a project, destroying your margins in the process.
You never want to be forced to choose between that scenario and a possible breach of contract. Ultimately, using online contract templates is sometimes safe. But, if you find that your business or the particular contract you need falls into one of the categories we covered above, then it’s a good idea to hire a lawyer to take a second look, to make sure you’re covered and to avoid mistakes like the misplaced comma that cost Lockheed Martin $70 million.
How Swiecicki & Muskett Help with Business Contracts
At the end of the day, it’s important to invest your resources wisely. However, if you’re having a lawyer review the contract, why not just have them write it for you in the first place? In that case, you’ll get a custom contract for your business with the legal precision, risk mitigation, and clarity needed to protect your interests and reduce the likelihood of a costly dispute down the road. That’s far better than what you’ll get from any of the online legal document alternatives. You’ll also have a lawyer to help navigate the negotiation process. If your company needs a solid contract to help keep its interests protected, contact Swiecicki & Muskett today for a free, no-obligation consultation.