The legal status of non-compete agreements is in flux, with the Biden Administration’s Federal Trade Commission (FTC) attempting to ban them nationwide—only to face immediate legal challenges. While some courts have upheld the ban, others have ruled against it, leaving businesses uncertain about enforceability. For modular builders and manufacturers, these agreements have traditionally protected proprietary knowledge, but shifting regulations mean they must be carefully structured to remain valid.
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With the incoming Trump Administration expected to overturn the FTC’s ban, non-compete agreements may once again be governed at the state level, creating a patchwork of enforcement. Employers in the modular industry, especially those considering non-competes for skilled labor amid ongoing worker shortages, should stay informed and consult legal experts to ensure compliance with evolving laws.
This article from Steve Snyder, Attorney at Law, is a must-read:
Are Non-Compete Agreements Still Legal?
There has been a lot of conflicting news lately as to whether non-compete agreement 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 is the latest
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.
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, geographic area and duration, and that they account for the industry’s unique demands. If the court finds that the agreement prohibits the employee from competing for too long a period of time or too broad a geographic area, the court will often find the contract unenforceable. Generally in the residential and commercial construction industry these agreements involve management and sales employees more often than laborers and trades employees. However, with continuing labor shortages, especially in the modular industry, many companies are looking at non-compete agreements for other employee positions as well.
Non-Compete Agreement for Current Employees vs. New Employees
Most state courts have ruled that requiring a current employee to sign a non-compete agreements will only be enforceable if the employee receives additional consideration, such as a raise, bonus or additional vacation or benefits. Without this extra benefit, the agreement may not be valid for lack of consideration.
For new employees, non-compete agreements are generally enforceable as long as they are presented at the start of employment and are reasonable in scope, duration, and geography as mentioned above. The job offer itself serves as sufficient consideration.
Are Non-Compete Agreements Constitutional?
The constitutionality of prohibiting parties from entering into contracts hinges on balancing freedom of contract with public policy considerations. Courts have long upheld that certain contracts can be limited if they are against public interest. Non-compete agreements, if overly restrictive, can be seen as harming workers’ rights and economic competition. So, while freedom of contract is important, limitations like this are often considered constitutional if they serve a broader public good.
Prohibition of Non-Compete Agreements by the Biden Administration
In 2024, the Federal Trade Commission proposed a nationwide ban on non-compete agreements to enhance worker mobility and innovation. However, a federal judge in Texas blocked this rule, stating that the FTC lacked the authority to enforce such a ban. That ruling is entirely correct. An administrative agency does not have that kind of authority. Meanwhile, a Pennsylvania, the federal US District Court for the Eastern District upheld the FTC’s rule, creating a split among federal courts. The Middle and Western District Courts have not ruled on the FTC ban nor has the States Courts of Common Pleas. These courts traditionally concentrate more on the reasonableness of the agreement as discussed above. If your company is located in another state, drop me an email and I can check on the latest in your state’s court.
What is the Trump Administration’s view going to be on Non-Compete Agreements?
Under the incoming Trump administration, the Federal Trade Commission is expected to discontinue its non-compete ban. This would likely return the regulation of non-compete agreements to state levels. This shift might increase the variability in how these clauses are enforced across different states, potentially leading to a more fragmented legal landscape. It’s definitely a topic to watch closely and prudent employers should contact their attorney when considering non-compete agreements.
Having a trusted attorney draft or review your no-compete contracts is crucial because they can ensure the terms are reasonable and enforceable. They can help you understand your rights and obligations, ensuring the contract protects your company without being overly restrictive. This helps avoid potential legal issues down the road. If you have a question about how non-compete agreements could be implemented in your company, do not hesitate to give Steve Snyder a call at (717) 975-7799 or email him at [email protected].
DON’T WAIT UNTIL YOU HAVE A SERIOUS LEGAL PROBLEM TO CALL
If you have never had an attorney review your contract, you should not put it off. Give me a call at (717) 975-7799 or go to my web site for more information at www.steveonyourside.com. My email address is [email protected]
Steve Snyder is an attorney in Harrisburg, Pa, licensed to practice in Pennsylvania and New Jersey. Steve also consults on many other issues throughout the country, including modular sales tax, contracts, etc. Steve has almost 40 years of experience representing the modular industry Steve’s law practice concentrates on legal representation of Modular Manufactures and Modular Builders, as well as conventional residential builders, remodeler building supply companies, building services companies and anyone involved in the residential construction industry. If you have a legal question about your business, give Steve a call at (717) 975-7799 or email him at [email protected].
Gary Fleisher, The Modcoach, writes about the modular and offsite construction industry at Modular Home Source.
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