When you sign an employment contract, it’s common to see a non-compete clause tucked inside. These clauses are designed to stop you from taking a job with a competitor, often in the name of protecting a company’s trade secrets or customer relationships. But with so much buzz about a non-compete ban on a national level, you might be wondering, “Does North Carolina have a non-compete ban?”
The answer is a bit more complicated than a simple yes or no. While the Federal Trade Commission (FTC) has made moves to ban non-competes nationwide, the courts have hit the brakes.
As things stand, the status of non-competes in North Carolina has NOT changed drastically under the FTC’s new rule. You might still find yourself restricted by one, depending on the details of your agreement.
In this blog, we’ll deep dive into what non-competes really mean for you in North Carolina, explore their legal standing, and walk through the specific rules that determine if your agreement holds up.
Let’s make sure you’re clear on where you stand.
What are Non-Compete Clauses?
Understanding Non-Compete Agreements
Non-compete clauses (“Non-competes”) are typically found in employment agreements and forbid employees from working for competitors of their employer. (1)
These restrictive covenants serve as a protective measure for businesses, shielding confidential information, trade secrets, and customer relationships. Non-competes are also often used to protect “customer relationships, investment in training, and goodwill” and thus are regarded as a powerful tool to protect the investments of businesses. (2)
If your employer has invested time and resources into training you, they may want to ensure that investment doesn’t directly benefit a competitor.
Protecting Business Interests
Non-compete agreements go beyond protecting trade secrets. Employers use them to:
- Maintain relationships with clients
- Protect goodwill
- Secure their investment in your training
They are often used as a preventative measure to protect the employer’s trade secrets or confidential information, which can include things such as customer lists, designs, financial information, operational processes, and more.
Whether you’ve been trained in specialized techniques or have gained access to sensitive data, your employer wants to avoid these assets being leveraged against them in the marketplace.
This is why such agreements are often seen as vital tools for businesses. By limiting where you can work after your employment ends, non-competes aim to preserve the competitive advantage employers have built.
Non-Compete Agreements: Current Status of Federal FTC Rule & NC Application
Employers have used contract law to limit the ability of former employees to compete against them for hundreds of years. (3)
During that time, however, Non-competes have been classified as “restraints of trade” in jurisdictions across the U.S. and are therefore subject to close scrutiny by courts. (4)
Despite this scrutiny, most U.S. jurisdictions have held that Non-competes are acceptable and enforceable under certain conditions, which vary depending on the jurisdiction. (5)
Reasonableness tends to be the recurring theme throughout U.S. jurisprudence, requiring Non-competes to “be reasonable in scope and to protect a legitimate business interest.” (6) This reasonableness requirement typically requires Non-competes to be within a specific geographic scope for a limited length of time after the employee leaves their current employer.
Federal Trade Commission Final Rule
On January 5, 2023, the Federal Trade Commission (the “FTC”) proposed a rule, which was published on May 7, 2024, that would ban Non-competes nationally (the “Rule”). (7)
This Rule was set to go into effect September 4, 2024, and would have virtually banned all Non-competes, with a few negligible exceptions, such as:
- Existing Non-competes for “senior executives” (i.e., workers earning more than $151,164.00 who are in a “policy-making position”)
- Non-competes in “sale of business” agreements. (8) Additionally, it would nullify any existing Non-competes and require employers to inform their employees subject to existing Non-compete agreements of the nullification. (9)
Texas Federal Court Rule Set Aside FTC Rule
However, a Texas federal court set aside the Rule on August 20, 2024, prohibiting the FTC from enforcing it. The court’s decision in Ryan LLC v. Federal Trade Commission (10) turned on whether the FTC’s rulemaking was permissible, not on whether Non-competes themselves are unlawful. (11)
The court’s decision rested on two key legal conclusions.
- First, the court found that the FTC has no authority to promulgate substantive rules regarding unfair competition.
- Second, that the Rule is invalid because it is arbitrary and capricious. (12)
Other Courts Followed Suit on Such Agreements
While the Ryan court was the first to issue a decision regarding the Rule, other federal courts followed suit.
Like the Ryan court, a Florida federal court temporarily blocked the Rule from being enforced against the plaintiff on August 15, 2024. The Properties of the Villages, Inc. v. FTC (13) court found that the plaintiff was likely to prevail on its argument that the Rule “presents a major question as defined by the Supreme Court,” and that Congress did not render “a sufficiently clear expression to authorize the final rule.” (14)
By contrast, in ATS Tree Services, a Pennsylvania federal court reached the opposite conclusion, allowing the Rule to stand, concluding that the FTC did not act unreasonably in issuing the Rule. (15)
The outcome of the court challenges remains unclear, and it may be years before the Rule is effective, if ever. Assuming these cases are each advanced to their respective appellate courts and do not reach a consensus, Supreme Court review is a strong possibility.
North Carolina Law on Non-Competes
Now that the court held the FTC is enjoined from enforcing the Rule (unless and until a successful FTC appeal), Non-competes return to the status quo and are legal and enforceable on the same terms as they were before the FTC published the non-compete rule, meaning they are subject to the state and appellate laws wherein they are enforced.
North Carolina courts have held on numerous occasions that Non-competes restricting an employee from working in a capacity unrelated to that in which he or she worked for the employer are generally overboard and unenforceable. (16)
North Carolina courts will enforce Non-competes if they meet five narrowly defined requirements. (17)
A valid Non-compete must be:
- In writing;
- Reasonable as to time and territory;
- Made a part of the employment contract;
- Based on valuable consideration, and
- Designed to protect a legitimate business interest of the employer.
Hopler, Wilms & Hanna business attorneys are available to walk you through the North Carolina case law that analyzes the above elements of your non-compete.
Summing Up What You Need to Know
Facing a non-compete agreement can be stressful, especially when you’re unsure of how it will affect your future career moves. You might wonder if your agreement is enforceable or if it’s too restrictive in the eyes of the law.
Non-compete clauses are not uncommon in North Carolina employment contracts, but their enforceability depends on meeting several specific legal criteria.
The details matter, and understanding those details could be the difference between being bound by an unfair agreement or protecting your career options. That’s where having the right legal guidance becomes essential.
At Hopler, Wilms, and Hanna, we’re here to walk you through every step of understanding your noncompete agreement, making sure you know your rights and options. You shouldn’t be left in the dark about how a restrictive covenant like this affects your future.
Breaking Down North Carolina’s Non-Compete Laws
In North Carolina, non-compete agreements are enforceable, but only under strict conditions. A valid non-compete must meet certain criteria, including being in writing, having a reasonable time and territory restriction, and being part of your employment contract. Most importantly, it must protect a legitimate business interest of your employer.
If any of these elements are missing, the agreement may not be valid under North Carolina law.
Courts in North Carolina are cautious when it comes to enforcing non-compete clauses. They look closely at whether these agreements are designed to protect an employer’s actual business interests—like intellectual property, client lists, or specialized training provided to employees.
If your non-compete seems overly broad or punitive, there’s a chance it could be challenged and struck down.
Recent Legal Challenges and the FTC’s Role
The Federal Trade Commission (FTC) recently attempted to implement a nationwide ban on most non-compete agreements through the FTC’s non-compete rule. This final rule would have nullified many existing agreements across the U.S., but it has faced significant legal challenges.
In fact, the United States District Court for the Northern District of Texas issued a preliminary injunction that temporarily halted the FTC’s motion to enforce the ban, stating that the FTC exceeded its statutory authority. Other courts, such as in ATS Tree Services, have allowed the rule to stand, creating uncertainty about the future of non-competes at a federal level.
As the legal battles continue, it could take years before we have a definitive ruling from higher courts, including the Supreme Court.
For now, North Carolina’s state law on noncompete agreements remains in place, so you need to understand how it affects you. That’s why Hopler, Wilms, and Hanna is here to help protect your career from irreparable harm from this unfair method of competition.
The Importance of Legal Guidance in Addressing Non-Competes
If you’re dealing with a non-compete agreement, whether you’re starting a new job or preparing to leave one, it’s critical to have our knowledgeable attorneys review the terms. Non-competes can restrict your ability to work in your field, and if the agreement is too broad or fails to meet the legal standards of North Carolina, it may not hold up in court.
Our experienced business attorney help you evaluate whether your non-compete is enforceable. We assess the time and territory restrictions, review whether the agreement is backed by valuable consideration, and determine if your employer’s business interest justifies the restrictions placed on you.
Whether you’re facing potential legal challenges to your non-compete or trying to negotiate more favorable terms, having legal representation can protect your future career opportunities.
Experienced Business Attorneys: Helping You Navigate Non-Compete Laws with Confidence
Given the evolving landscape of non-compete laws, including federal and state court rulings, it’s more important than ever to have a clear understanding of where you stand.
From cases like Ryan LLC to ongoing legal challenges surrounding the FTC’s authority, the future of non-compete clauses remains uncertain.
But one thing is clear: your non-compete agreement must meet the legal standards of North Carolina to be enforceable. If you’re unsure whether your agreement does, now is the time to seek legal advice.
Schedule a Free Consultation Today
At Hopler, Wilms & Hanna, our attorneys are dedicated to helping you navigate the complexities of non-compete agreements.
Whether you need advice on an existing agreement, want to understand your rights under North Carolina’s non-compete laws, or are facing legal challenges related to your agreement, we are here to help.
Schedule a consultation with one of our seasoned business attorneys today. You’ll receive personalized guidance and a thorough review of your non-compete, giving you the clarity you need to make informed decisions about your career.
References:
- Campbell Cargo, THE FEDERAL TRADE COMMISSION CAN’T COMPETE: WHY THE FTC IS LIKELY TO FALL TO CHALLENGES TO THE PROPOSED RULE NATIONALLY BANNING NONCOMPETE AGREEMENTS, 16 Elon L. Review. 381, 382 (2024) citing Maxwell Goss, How Employers Can Prepare for a Possible Non-compete Ban, Goss, Maxwell, 35 N.C. LAWS. WKLY. 2, 25 (Feb. 2023), https://issuu.com/scbiz/docs/nclw_february_23_web.
- Id.
- Harlan M. Blake, Employee Agreements Not to Compete, 73 HARV. L. REV. 625 (1960), note 12, at 626 (noting covenants not to compete “comprise one of the traditional common-law ‘restraints of trade’ and present problems which have kept them before the courts for more than five hundred years”); see also id. at 629–37 (discussing English case and statutory law regarding post-employment covenants dating back to the 1400s).
- Id
- See Cargo, supra, at 383-84.
- Id
- Non-Compete Clause Rule, 16 CFR Part 910 (2024).
- Id
- Id
- Case No. 3:24-cv-00986 (N.D. Tex., August 20, 2024).
- Id
- Id
- Case No. 5:24-cv-316 (M.D. Fla., Aug. 15, 2024).
- Id
- ATS Tree Services, LLC v. FTC, Case No. 2:24-cv-01743 (E.D. Penn., July 23, 2024).
- CopyPro, Inc. v. Musgrove, 232 N.C. App. 194, 200 (2014), citing Henley Paper Co. v. McAllister, 253 N.C. 529, 534-35 117 S.E.2d 431, 434 (1960) (holding that a noncompetition agreement was unenforceable on the grounds, in part, that it precluded the defendant from engaging in activities unrelated to those inherent in the sales position that he had occupied while employed by the plaintiff); Med. Staffing Network, Inc. v. Ridgway, 194 N.C. App. 649, 656-57, 670 S.E.2d 321, 327-28 (2009) (holding that a noncompetition agreement that prohibited an employee from working for a competing business even if the employment duties assigned to that employee by the competing business were not similar to the duties that the employee had performed while working for the plaintiff was unenforceable); VisionAIR, Inc. v. James, 167 N.C. App. 504, 508-09, 606 S.E.2d 359, 362-63 (2004) (alterations in original) (holding that a covenant that prohibited an employee from “own[ing], manag[ing], be[ing] employed by or otherwise participat[ing] in, directly or indirectly, any business similar to” the employer’s business was overly broad and unenforceable); Hartman v. W.H. Odell & Assocs., 117 N.C. App. 307, 317, 450 S.E.2d 912, 919 (1994), (holding that a non-competition agreement was unenforceable on the grounds that the agreement in question prohibited the plaintiff from having any “association whatsoever with any business that provides actuarial services”).
- CopyPro, Inc., 232 N.C. App. at 199.