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Is the law surrounding non-compete agreements changing?

On Behalf of | Oct 20, 2023 | Employer Concerns |

Kentucky courts regularly recognize and enforce non-compete agreements. Yet, these restrictive contracts have garnered a lot of negative attention in recent years. Some states don’t even allow them. And over the last year, the federal government has thought about weighing in, even having an open public commenting period earlier this year on a potential ban on non-compete agreements.

Although that commenting period ended in April, the Federal Trade Commission (FTC) has yet to move forward with any additional formal action. Some reports indicate that the FTC will hold off a vote on the ban until 2024. So, where does that leave Kentucky’s businesses and workers?

Benefits of a non-compete agreement from an employer perspective

Businesses use non-compete agreements for a variety of reasons. This includes:

  • Ensuring that intellectual property, trade secrets, and strategies that give them an edge in the market aren’t spread to competitors.
  • Reducing the amount of turnover in key positions.
  • Restricting competitors’ access to talent, thereby driving up competitor recruitment costs.
  • Limiting the formation of a new business that could become a competitor.

While these agreements are negotiated between employers and employees, many workers feel like they don’t have much leverage in talks surrounding these agreements. This power imbalance has become a focus point of critics who claim that the business protections provided by non-compete agreements come at the expenses of workers.

Why would an employee want to sign a non-compete agreement?

In most instances, this comes down to money. An employee should be offered compensation in exchange for their agreement to a non-compete agreement, but there should always be negotiation on the terms of the agreement, including its duration and geographical scope.

Should non-competes be used in Kentucky?

That’s a call that has to be made on a case-by-case basis. But given the scrutiny they’ve been given by the FTC, it’s probably a good idea to refrain from them unless absolutely necessary. And even then, you should be sure to discuss the matter with your attorney.

If you or your business are already a party to a non-compete agreement, though, then you might still run into legal issues that you need to address.

Unreasonable non-compete agreements

A non-compete agreement can be deemed legally invalid if it’s overly oppressive. When disputes over the terms of a non-compete arise, the court will assess the duration, geographical scope, the type of work that’s restricted, and whether the non-compete is necessary to protect a legitimate business interest. Therefore, non-competes that last several years, prohibit working in the industry anywhere in the state, and that aren’t supported by strong business justifications are likely to fail in court.

Dealing with enforcement

If you’re a business looking to enforce a non-compete agreement, then you should be prepared to:

  • Contact the former employee to remind them of their obligations under the agreement.
  • Contact their current employer to educate them on the restrictions contained within the non-compete agreement.
  • Seek injunctive and compensatory relief if the agreement is violated.

Remember, as a business, a non-compete agreement is only valuable if it’s legally viable and enforced.

Do you have additional questions about non-compete agreements in Kentucky?

The law surrounding non-compete agreements is in a state of flux. Therefore, you shouldn’t make any drastic moves to utilize one of these agreements until you’ve discussed it with your attorney. But if you’re already dealing with issues relating to an existing non-compete agreement, regardless of whether you’re an employer or a worker, then you need to ensure that you know how to use the law to your advantage. Only then can you figure out the best ways to protect your interests.