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What is the status of non-compete agreements in Kentucky?

On Behalf of | May 2, 2024 | Employment Law For Employers

Many business owners in the Lexington and Louisville areas may have heard from the national media or other sources that the federal government recently banned non-compete agreements.

Reports from CNN and other sources reveal some important details about this recent and far-reaching legal development.  Keep in mind that this is still a developing situation, so things may change:

  • The Federal Trade Commission, or FTC, a federal agency charged with ensuring that our free market is also a space where people and businesses play fairly, issued a final administrative rule which prohibits most businesses in the United States from using non-compete agreements with most types of employees.
  • The rule also effectively invalidates existing agreements, as a company would have no power to enforce them.
  • The FTC determined noncompete agreements are an unfair method of competition.
  • To review, a non-competition agreement, also commonly called a covenant not to compete or noncompete agreement, limits an employee from working from their employers’ competitors and setting up a competing business, even after the employee leaves their company.
  • Many Kentucky employers require would-be employees to sign non-compete agreements. Like any other term of a contract, these agreements are negotiable. An employee does not have to agree with it, but an employer may then choose to hire someone else.
  • Subject to some restrictions, non-compete agreements are enforceable under Kentucky law. That said, the rules of federal agencies like the FTC have the force of law and usually trump the laws of the states.
  • This new rule is schedule to take effect in September. However, several business organizations have already challenged the FTC’s rule in court. The legal challenges could ultimately derail this rule or could delay its enforcement for months or even years.

Kentucky business owners should keep a close eye on the new FTC rule

While a wait-and-see approach could well be the best course of action right now, Kentucky businesses should monitor the status of this rule as the legal challenges to it progress.

Many businesses in this area rely on noncompete agreements to protect their interests. They may wish to start evaluating their options and alternatives early on in the event that the legal landscape for noncompete agreements changes drastically.