A non-compete agreement is a contract where an employee agrees not to enter into competition with an employer during or after the employment period. This usually includes restrictions on working for competitors or starting a similar business within a specified time frame and geographic area.
Recent Legal Developments: Are They Still Legal?
There has been a lot of conflicting news lately as to whether non-compete agreements are still legal. The Biden Administration’s Federal Trade Commission (FTC) recently instituted new rules to ban non-compete agreements. That rule was immediately challenged in the Courts. Here are the latest updates that have been released.
Special Considerations for the Modular Industry
For modular builders and manufacturers, non-compete agreements need to be carefully crafted. Given the specialized skills and local nature of work, courts often scrutinize them to ensure they aren’t overly restrictive. It’s important that the terms of the agreement are:
- Reasonable in scope
- Limited in geographic area
- Fair in duration
The agreement must also account for the unique demands of the modular industry. If the court finds the contract overly broad or too lengthy, it may be deemed unenforceable.
Generally, in the residential and commercial construction industry, these agreements apply to management and sales employees more often than to laborers and tradespeople. However, with continuing labor shortages—especially in the modular industry—many companies are beginning to consider non-compete agreements for a wider range of employee positions.
Current Employees vs. New Employees: What's the Difference?
For current employees:
Most state courts have ruled that requiring an existing employee to sign a non-compete is only enforceable if additional consideration is provided. This may include a raise, bonus, additional vacation, or enhanced benefits. Without that extra benefit, the agreement may not hold up in court.
For new employees:
Non-compete agreements are generally enforceable as long as they’re presented at the time of hire. The job offer itself is considered sufficient consideration—so long as the agreement is reasonable in scope, duration, and geography.
Are Non-Compete Agreements Constitutional?
The constitutionality of restricting these agreements comes down to freedom of contract vs. public policy. Courts have historically upheld that contracts can be limited if they:
- Go against public interest
- Harm workers’ rights
- Restrict economic competition
While people should be free to contract, overly restrictive non-competes can be seen as unconstitutional if they harm the broader public good.
The FTC’s Proposed Ban on Non-Competes
In 2024, the Federal Trade Commission proposed a nationwide ban on non-compete agreements to enhance worker mobility and foster innovation.
- A federal judge in Texas blocked the rule, stating the FTC lacked authority.
- Meanwhile, in Pennsylvania, the federal U.S. District Court for the Eastern District upheld the FTC’s rule.
This split among federal courts creates uncertainty. The Middle and Western District Courts in Pennsylvania have not yet ruled, and neither have the state-level Courts of Common Pleas. These courts traditionally focus more on the reasonableness of the agreement, as discussed earlier.
Not in Pennsylvania?
Email Steve Snyder at stevenrsnyderesq@gmail.com, and he can check your state’s latest legal standing on non-competes.
What’s Likely Under the Trump Administration?
Under the incoming Trump administration, the FTC is expected to reverse course and discontinue the non-compete ban. This would return regulation of non-compete agreements to individual states, leading to:
- Increased state-by-state legal variation
- A more fragmented and complex legal environment
If you’re a business owner, this uncertainty makes it even more important to consult with an attorney before implementing or updating a non-compete.
Why You Should Have an Attorney Review Your Agreement
Having a trusted attorney draft or review your non-compete contract is critical. A good attorney will:
- Ensure the terms are legally sound and reasonable
- Protect your company without overreaching
- Reduce the risk of costly disputes or lawsuits
If you have questions about how non-compete agreements could apply to your company—or if your current agreements need a refresh—give Steve Snyder a call at (717) 975-7799 or email stevenrsnyderesq@gmail.com.
Don’t Wait Until You Have a Serious Legal Problem to Call
When it comes to non-compete agreements, the legal landscape is changing quickly—and the risks of getting it wrong are too big to ignore. If you’re relying on outdated contracts or unsure whether your agreements will hold up in court, now is the time to take action. A well-drafted non-compete can protect your business, your workforce, and your future—but only if it’s tailored to your industry and compliant with current law.
Don’t wait until you’re facing a lawsuit or audit.
Call today at (717) 975-7799 or email stevenrsnyderesq@gmail.com to get the legal protection your business needs.