FTC Bans/Voids Non-Compete Clauses

[Sigmapolis]

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

Most professional services work like this as far as I know (e.g., law, accounting firms, consulting firms, and, in my case, high-value software sales, etc.). There's usually a 6-12 month restriction once you leave towards trying to take clients with you but after that... game on. May the best man/woman win.

 

[throwittoblythe]

Most professional services work like this as far as I know (e.g., law, accounting firms, consulting firms, and, in my case, high-value software sales, etc.). There's usually a 6-12 month restriction once you leave towards trying to take clients with you but after that... game on. May the best man/woman win.

I’ve worked a few places that had them but really only one that enforced it.

The legal folks can correct me: but I’ve viewed them as more of a threat than actually enforceable from the start. The company would have to prove damages from the employee going to a competitor which is hard to do unless the employee is giving away trade secrets.

However, these companies have teams of lawyers and get the employee to fold just by overwhelming them with lawyer fees. Even though the company can’t win in court, they can beat you by never even getting there.

The last place I worked (construction) would warn you if you left for a competitor. They would leave you alone unless they saw your new company bidding against them on a project. Then you could expect to hear from the lawyers right away.

 

[Cyclonepride]

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.

What about the ability to freely enter into any voluntary contract without interference as to the terms?

 

[IcSyU]

A couple people I talked to said things like nonsolicitation would still be legal.

For example I left a CPA firm last fall. I didn't have restrictions on where I could go but I do have a nonsolicitation agreement that says I owe a fee back to my prior employer if I take any clients. The few people in the legal field I've spoken to about it think that wouldn't be voided by this.

And frankly since the time period is 2 years it will expire LONG before injunctions and court challenges to this resolve where it could actually be on the books.

 

[ISUAgronomist]

That didn't take long:
www.cnbc.com/amp/2024/04/24/chamber-of-commerce-sues-ftc-for-banning-noncompete-clauses.html

 

[BCClone]

Most professional services work like this as far as I know (e.g., law, accounting firms, consulting firms, and, in my case, high-value software sales, etc.). There's usually a 6-12 month restriction once you leave towards trying to take clients with you but after that... game on. May the best man/woman win.

I did appraisals for a few years. This is a problem with that industry and is basically killing itself. You have to have so many hours of work under a licensed appraiser while also getting a decent amount of schooling. The licensed appraiser can drag out your hours so they can kinda starve you out, but if you do happen to get the hours at a reasonable pace, the non-competes are fairly wide and encompassing so you almost have to move if you don't live in a large city. If you choose to work for an appraiser in the time being, it is pretty much a 50/50 split (which makes it similar to working at Casey's making pizza since you have no benefits and you are an independent contractor).

This is why nobody goes into the field much, the appraiser wants to starve you out since they know that if you can go independent, you can cut the 450 they are getting down to 350-400 very easily since they are only paying 225 to you and the expenses are still basically the same so anything more is pure profit. That in return forces the appraiser to lower their charges to meet yours.

 

[ghyland7]

Most professional services work like this as far as I know (e.g., law, accounting firms, consulting firms, and, in my case, high-value software sales, etc.). There's usually a 6-12 month restriction once you leave towards trying to take clients with you but after that... game on. May the best man/woman win.

Lawyers are not allowed to have noncompete agreements.

Our profession survives with people joining/leaving firms just fine. It causes some stress if a big partner leaves a firm, but our business is often more focused on the individual anyway.

 

[ghyland7]

I’ve worked a few places that had them but really only one that enforced it.

The legal folks can correct me: but I’ve viewed them as more of a threat than actually enforceable from the start. The company would have to prove damages from the employee going to a competitor which is hard to do unless the employee is giving away trade secrets.

However, these companies have teams of lawyers and get the employee to fold just by overwhelming them with lawyer fees. Even though the company can’t win in court, they can beat you by never even getting there.

The last place I worked (construction) would warn you if you left for a competitor. They would leave you alone unless they saw your new company bidding against them on a project. Then you could expect to hear from the lawyers right away.

Noncompete enforceability depends on where you live.

Iowa noncompetes are absolutely enforceable, so long as they are reasonable in terms of time/distance. It’s not like there is an absolute rule for the length of both, but a good rule of thumb is that 50 miles and 2 years is likely going to be upheld by the courts, outside of specific situations impacting the public good.

I do a lot of work with healthcare, and providers absolutely seek injunctive relief to enforce noncompetes. I imagine that some industries worry about it less.

I will also add, many of these noncompetes include a “buy-out” price, often in the tens of thousands (or even hundreds of thousands in some scenarios). Companies see this as the way to recoup their costs of training.

 

[Clonefan32]

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

I imagine this is where it's all headed. You have to protect companies on some level with their proprietary information, etc. I get that non-competes can be more onerous than they need to be and hurts consumers. But there's a legitimate business interest in keeping your information private.

 

[Clark]

The way I see it, the problem isn't necessarily with the non competes it's with the overzealous way companies have been using them. You want to have your company CFO who makes 350k a year sign a non compete, I'm fine with that. You force some entry level employee making 25k a year to sign one or not have a job, that is oftentimes unnecessarily cruel.

I think a good compromise is limiting non competes to employees making more than a multiple of the federal poverty level or local poverty level which ever is higher.

 

[throwittoblythe]

Noncompete enforceability depends on where you live.

Iowa noncompetes are absolutely enforceable, so long as they are reasonable in terms of time/distance. It’s not like there is an absolute rule for the length of both, but a good rule of thumb is that 50 miles and 2 years is likely going to be upheld by the courts, outside of specific situations impacting the public good.

I do a lot of work with healthcare, and providers absolutely seek injunctive relief to enforce noncompetes. I imagine that some industries worry about it less.

I will also add, many of these noncompetes include a “buy-out” price, often in the tens of thousands (or even hundreds of thousands in some scenarios). Companies see this as the way to recoup their costs of training.

That's really interesting to hear. My experience is limited to engineering/construction. Non-competes are generally two years after you leave and they disallow work for any direct competitors. There is usually not a limit on the distance/mileage since many of these firms cover partial or entire segments of the country.

What I've seen from an enforcement standpoint is they only pursue legal action if you are soliciting clients or trying to poach people. But I've never actually heard of anyone getting to court. Usually it's a sternly worded letter warning of legal action if you keep up whatever it is that you're doing that they don't like. It's not the legal consequences that scare people, its the cost of defending yourself against a $100M+ company with a team of lawyers and deep pockets.

But to prove actual damages in our industry would be very difficult, from what I understand, unless you steal a client or share trade secrets (which would be covered by an NDA anyway). As long as you don't do that, then the threat of legal action is pretty low (again, speaking only for my industry).

 

[CascadeClone]

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?

There ARE some instances where non competes are legit. Someone mentioned tradesmen - you spend 2 years training them, they get experience, and then they can totally undercut you and start their own biz. That's a real issue for small biz, its not just Conglomo-Corp hosing the little guy. Ironically, I bet vast majority of NCs are done by big corps, and not small biz.

In my business, you train sales people, they make personal relationships with customers, and if they jump you can lose a big customer. Heck, they can even jump in advance of a big deal, and take it with them to jump start their own company. We worry about it a lot, but we pay good commissions so money isn't a driver. But if one of them wanted to start his own company, we are training & supporting our competition. We don't do NC's and have never thought about it. Though others in our industry absolutely do them (never heard of one enforced though).

All that said, I'd guess at least 80% of existing NCs are not legit. 100% agree with you that the worst companies do these the most - Honeywell is notorious for hitting almost everyone with them, AND trying to enforce them! My experience is that most companies that have them, its more of a "well its the thought that counts" to scare people - they would never actually go to court to enforce.

200% agree with you about culture and opportunities etc being the real key. People leaving is much less about money than it is bad managers, no real advancement chances, crappy environment. To the extent that this sharpens management minds about doing better by their employees to keep them on board, that's a good thing. I won't hold my breath though.


Second topic - what about with company buy outs? When you sell a small biz, they often put a noncompete on the former owner so he doesn't just hire key people away and start over. Is that still ok?

 

[intrepid27]

As a recruiter I talk to people who have non competes on a weekly basis. My experience has been that in commercial (sales or marketing) roles they are almost impossible to enforce and will almost always get tossed out in court. That said, companies bank on the fact that most people won't want to hire an attorney to fight their non compete.

I do feel that companies do need some protection when employees have truly unique or sensitive knowledge and/or information. I've seen companies that last couple of years migrate to more of an NDA verses a non compete for a lot of technical or high level mgt roles.

 

[cowgirl836]

I’ve worked a few places that had them but really only one that enforced it.

The legal folks can correct me: but I’ve viewed them as more of a threat than actually enforceable from the start. The company would have to prove damages from the employee going to a competitor which is hard to do unless the employee is giving away trade secrets.

However, these companies have teams of lawyers and get the employee to fold just by overwhelming them with lawyer fees. Even though the company can’t win in court, they can beat you by never even getting there.

The last place I worked (construction) would warn you if you left for a competitor. They would leave you alone unless they saw your new company bidding against them on a project. Then you could expect to hear from the lawyers right away.

Many of them are unenforceable but to find that out, you may need to jump through hoops you can't afford. I know when I was searching, many, many, many of the applications asked if I had a non-compete. Some asked if specific to the industry, some asked just in general. Most of the time it didn't matter because I left my industry but I knew that if I were hiring and I had two fairly equal candidates - one with a non compete and one without.......

 

[cowgirl836]

As a recruiter I talk to people who have non competes on a weekly basis. My experience has been that in commercial (sales or marketing) roles they are almost impossible to enforce and will almost always get tossed out in court. That said, companies bank on the fact that most people won't want to hire an attorney to fight their non compete.

I do feel that companies do need some protection when employees have truly unique or sensitive knowledge and/or information. I've seen companies that last couple of years migrate to more of an NDA verses a non compete for a lot of technical or high level mgt roles.

Yep. As to the last part, I know where I was they did both an NC and an NDA. Again, started for me as a very junior employee so I imagine it was very widespread usage throughout the company.

 

[CascadeClone]

The way I see it, the problem isn't necessarily with the non competes it's with the overzealous way companies have been using them. You want to have your company CFO who makes 350k a year sign a non compete, I'm fine with that. You force some entry level employee making 25k a year to sign one or not have a job, that is oftentimes unnecessarily cruel.

I think a good compromise is limiting non competes to employees making more than a multiple of the federal poverty level or local poverty level which ever is higher.

I think it depends on the role a lot more. Like, the CFO is kind of generic, like HR - support roles. I don't think there would be much risk of that person leaving and causing you competitive problems. Design people, product experts, maybe sales people... much more risk.

But totally agree on having pay be some kind of minimum. If someone is so critical you don't want them to work for a competitor... why tf are you paying them $20 an hour???

 

[IcSyU]

Second topic - what about with company buy outs? When you sell a small biz, they often put a noncompete on the former owner so he doesn't just hire key people away and start over. Is that still ok?

Still perfectly legal.

 

[isufbcurt]

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 have a lot of plumbing clients and not one has ever had a noncompete for their employees. I think they just expect high turnover as an inherent part of the industry.

 

[isufbcurt]

A couple people I talked to said things like nonsolicitation would still be legal.

For example I left a CPA firm last fall. I didn't have restrictions on where I could go but I do have a nonsolicitation agreement that says I owe a fee back to my prior employer if I take any clients. The few people in the legal field I've spoken to about it think that wouldn't be voided by this.

And frankly since the time period is 2 years it will expire LONG before injunctions and court challenges to this resolve where it could actually be on the books.

I never understood how they would enforce that. A client is free to go to whoever they want for their accounting services.

 

[qwerty]

Second topic - what about with company buy outs? When you sell a small biz, they often put a noncompete on the former owner so he doesn't just hire key people away and start over. Is that still ok?

There used to be a furniture manufacturing company in AL named BEVIS (yes, actually). Owner sold if for 10s of millions, moved across town and started ABCO (Another Bevis COmpany). Pulled some of the old employees to him, but not all. Now both are out of business.