As you look to expand your business in the U.S. and grow your American workforce, there are some key things you absolutely need to know about employment contracts. These contracts can be tricky, especially if you’re not familiar with how they work in the U.S. But don’t worry— we are here to help guide you through this process so you can navigate these contracts with confidence and avoid any potential pitfalls.
When you bring someone on board in the U.S., it’s very common for the employer to ask employees to sign certain agreements. The most common ones are:
- Non-compete Agreement: This essentially stops them from working for a competitor after they leave your company. This is designed to protect business interests, but there are some limits depending on where the employee is located.
- Non-disclosure Agreement (NDA): Used to protect confidential business information. This agreement ensures that your employee doesn’t share sensitive details about your company with others—either before, during, or after their employment with you.
- Non-solicitation Agreement: This prevents an employee from poaching your clients or other employees once they leave. It’s a way to safeguard your relationships and talent.
Are non-compete agreements enforceable?
Here’s the thing about non-compete agreements: They are not a “one-size-fits-all” type of contract in the U.S. Their enforceability depends on where the employee is based. Some states are more lenient with these agreements, while others outright ban them.
Now, you might be thinking, “How can I know if a non-compete agreement is enforceable?” Well, that’s where things get a bit tricky. If the terms of the non-compete are too restrictive, they could be considered unfair, especially if they severely limit someone’s ability to earn a living. That’s why it’s so important to understand the details before you move forward:
- Hiring in a competitive field? If so, it’s likely that candidates have already signed non-compete agreements with their current employers. Be aware of this upfront, so you’re not surprised later.
- Understand the State Laws: The laws on non-competes vary from state to state. In California, Minnesota, North Dakota, and Oklahoma, non-compete agreements are banned, so you’d need to know what applies to your situation.
- Ask the Right Questions Early: Don’t wait until the offer stage to bring this up. Ask candidates early in the interview process if they have signed a non-compete. And make sure to ask about what exactly it covers.
- Get a Feel for the Candidate’s History: Ask candidates if their previous employers have enforced non-compete agreements. This can give you valuable insight into how serious the previous company was about enforcing those clauses.
- Consult a Legal Expert: If you’re ever in doubt, don’t hesitate to show the non-compete agreement to a lawyer. This might seem like an extra step, but it could save you from a lot of headaches down the road. A quick consultation can give you peace of mind.
Are non-competes going away soon?
You might have heard that non-compete agreements could soon be banned in the U.S. This change has been making headlines, and you may be wondering how it will affect your hiring practices.
The Federal Trade Commission (FTC) made a major move in April 2024, finalizing a rule that would have placed a near-total ban on non-compete agreements. If this rule had gone into effect, it would have made all non-competes—existing and future—unenforceable. The only exception would have been non-competes for high-level employees earning over $151,164 annually. The FTC argued that non-competes are an unfair method of competition and a violation of U.S. labor laws.
However, just before the rule was set to take effect on September 4, 2024, the U.S. District Court for the Northern District of Texas placed an injunction on the rule. So, what does that mean for you?
An injunction is a court order that temporarily blocks or prevents a law or rule from being enforced. In this case, it means that the FTC’s ban on non-competes is currently on hold while the legal process plays out. The FTC is appealing this decision to the U.S. 5th Circuit Court of Appeals, and this could take several months (or even years, if it goes to the U.S. Supreme Court).
In the meantime, it’s wise for you to:
- Stay informed about the status of the FTC’s appeal. The situation is evolving quickly, so keeping track of legal updates is crucial.
- Know your state’s laws on non-compete agreements. If you’re hiring in a state where non-competes are enforceable, make sure you’re in compliance with local regulations.
- Keep an eye on policy changes. For example, the National Labor Relations Board (NLRB) has made it clear that non-competes may violate workers’ rights under the National Labor Relations Act. This is an ongoing issue that could affect your contracts.
Final Thoughts
Hiring in the U.S. can seem overwhelming, but you don’t have to navigate these legal complexities on your own. At YER USA, we specialize in helping European companies like yours expand into the U.S. and grow a successful, compliant workforce. We’re here to help you make informed decisions and avoid the legal minefields that can trip up even the most experienced companies.
If you’re ready to expand your team in the U.S. but need some guidance on employment contracts or anything else related to the hiring process, we’re here for you. Let’s make sure you’re set up for success in this exciting new market.
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