FTC Bans/Voids Non-Compete Clauses

[Jer]

https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete_nprm_fact_sheet.pdf

The FTC voted 3 to 2 Tuesday to issue the rule it proposed more than a year ago. The new rule makes it illegal for employers to include the agreements in employment contracts and requires companies with active noncompete agreements to inform workers that they are void. The agency received more than 26,000 comments about the rule after it was proposed some 16 months ago.

 

[Messi]

i know linkedin popping right now

 

[ghyland7]

I’ve been loosely following this over the past year from when there was the original suggestion going into public comment.

I am an attorney who does a smattering of estate planning and business/transactional work.

Noncompetes are a big contention point in my business, particularly in healthcare.

I imagine this will be challenged within a few months. It’ll be interesting to see how the courts rule on the issue of whether the FTC has the administrative authority to make this decision.

 

[tman24]

Hopefully the same judges that have ruled on the NCAA rulings will take these on as well.

 

[CyValley]

I’ve been loosely following this over the past year from when there was the original suggestion going into public comment.

I am an attorney who does a smattering of estate planning and business/transactional work.

Noncompetes are a big contention point in my business, particularly in healthcare.

I imagine this will be challenged within a few months. It’ll be interesting to see how the courts rule on the issue of whether the FTC has the administrative authority to make this decision.

I appreciate your comments from a legal perspective. I have a point of view but I don't have a lick of legal knowledge. I have a broad perspective that American citizens should have the ability to move freely as they choose.

Would you be willing to post the simple legal perspective from a pro and con point of view? I'm interested in learning. Thanks much.

 

[ghyland7]

I appreciate your comments from a legal perspective. I have a point of view but I don't have a lick of legal knowledge. I have a broad perspective that American citizens should have the ability to move freely as they choose.

Would you be willing to post the simple legal perspective from a pro and con point of view? I'm interested in learning. Thanks much.

Well, I generally agree with you, actually.

From a philosophical perspective, I think the benefits for workers of free movement (and wage competition) far outweigh the cons for businesses.

Some business owners would argue that noncompetes help to avoid situations where one employer essentially "trains" an employee (presumably at a bit of a financial loss from a money in/out perspective), and then the employee just leaves to go to the competitor across the street. I think that in some niche businesses or situations, this could be a concern, but imo it's more of an issue with a business model rather than an issue with noncompetes.

From a legal perspective, the question is whether or not the FTC, an executive branch agency, has the authority to ban noncompetes on the whole. The people opposed to the new rule will argue that the only entity which has the power to make that type of action would be the congress, through the commerce clause (and arguably, they would say that there isn't even authority under the commerce clause, but that's a whole other issue).

I'm guessing that activist groups opposed probably already have some potential plaintiffs ready to go.

 

[CtownCyclone]

Some of the restrictions on those agreements are pretty ridiculous. Like when I worked for my last company, they had clauses that appeared to indicate I couldn't be anywhere that had building materials in it after I left for 2 years. Only 2 months to go until I can reenter society...

 

[cowgirl836]

Some of the restrictions on those agreements are pretty ridiculous. Like when I worked for my last company, they had clauses that appeared to indicate I couldn't be anywhere that had building materials in it after I left for 2 years. Only 2 months to go until I can reenter society...

Same. Tried to block me from my industry for 2yrs when I was making....45 to 60k. Not exactly a big wig with secrets.They realized those didn’t hold so they reworked them company wide and it was 1.5 after I became a manager. You re signed that one or you gave up bonuses and raises. Some people did. But I also had an NDA so it's all just ways to trap employees.

 

[Cyched]

Some business owners would argue that noncompetes help to avoid situations where one employer essentially "trains" an employee (presumably at a bit of a financial loss from a money in/out perspective), and then the employee just leaves to go to the competitor across the street. I think that in some niche businesses or situations, this could be a concern, but imo it's more of an issue with a business model rather than an issue with noncompetes.

Every place I’ve worked at since college has had some sort of vesting schedule for ESOP or even 401k contributions. Not ideal, but that’s one way to discourage people leaving that isn’t as heavy handed as a noncompete. And ultimately people can still move on if they’re not happy/good fit or they get an opportunity they can’t refuse.

Ultimately the cost of onboarding and training employees has to be baked in somewhere into your business model.

 

[BCClone]

Where this will hurt is the plumbers and electrician type professions. They get trained as an apprentice and then when they get licensed they can walk into their employers customers and cut the bids by 20% or so and pull business from the person who trained them.

 

[Cyched]

Where this will hurt is the plumbers and electrician type professions. They get trained as an apprentice and then when they get licensed they can walk into their employers customers and cut the bids by 20% or so and pull business from the person who trained them.

The Michael Scott Paper Company approach

 

[BCClone]

The Michael Scott Paper Company approach

I know that is the office but have only seen one episode of it so I can’t answer.

 

[Cycsk]

My first thoughts were about company owners with proprietary knowledge and relationships that would be lost because of this ruling.

Also interesting that @ChrisMWilliams comments on his podcast were supportive of staff in sports media, even though he is a sports media owner.

 

[Cyched]

My first thoughts were about company owners with proprietary knowledge and relationships that would be lost because of this ruling.

Also interesting that @ChrisMWilliams comments on his podcast were supportive of staff in sports media, even though he is a sports media owner.

Sounds like NC agreements are common in that world, per his comments. Maybe the removal finally puts some upward pressure on wages in an industry that has historically not paid well.

 

[Cycsk]

Sounds like NC agreements are common in that world, per his comments. Maybe the removal finally puts some upward pressure on wages in an industry that has historically not paid well.

Yet, CF and IE staff are given incredible access to relationships and contact info they wouldn't otherwise have. I wouldn't blame CW if he had non-compete clauses in staff contracts.

 

[Cyched]

Yet, CF and IE staff are given incredible access to relationships and contact info they wouldn't otherwise have. I wouldn't blame CW if he had non-compete clauses in staff contracts.

I wouldn’t blame him either. But his reaction on the pod indicated support for banning them, and fairly unequivocal. There’s probably more to the iceberg than we realize.

 

[Cycsk]

I wouldn’t blame him either. But his reaction on the pod indicated support for banning them, and fairly unequivocal. There’s probably more to the iceberg than we realize.

I know CW has talked on the pod about having a soft spot for lower-level staffers in sports media who are not well-treated, especially in this day of big corporate ownership.

 

[kirk89gt]

As an HR professional, I am generally not in favor of non compete agreements. In fact, I think noncompete agreements are a pretty good indicator of the culture and climate of the company you work for. The more restrictive the agreement, the farther away from that company I would want to get.

Here’s a novel idea……. How about businesses work on providing an appropriate culture, opportunities, and benefits so that their employees don’t wanna leave to go work for the competition?

Restrict confidential and proprietary information all you want….unfortunately, the burden of proof is a pretty high bar for the plaintiff to prove.

FWIW, quite a few states already have laws banning or significantly restricting the reach of non competes.

 

[Cyched]

How about businesses work on providing an appropriate culture, opportunities, and benefits so that their employees don’t wanna leave to go work for the competition?

 

[Cydwinder]

Where this will hurt is the plumbers and electrician type professions. They get trained as an apprentice and then when they get licensed they can walk into their employers customers and cut the bids by 20% or so and pull business from the person who trained them.

I understand this thought and could understand some restrictions around work with existing clients or ongoing work for a set period of time. So maybe an electrician can leave but not provide work to an ongoing client project for 6 or 12 months or something. Reduces harm to the business and still allows the individual to have opportunities