FTC rules non-compete agreements are no longer binding

[Dan Druff]

The FTC has been analyzing the non-compete situation for awhile, and has finally made a ruling.

Following publication in the federal register, which should happen soon, the new rule will take effect 120 days after that. This means, at minimum, non-competes will still be in effect until at least late August, but after that they will be voided.

This includes almost all non-competes, aside from senior executives who made $151k/year or more (and had decision making power).

All other non-competes will be retroactively voided, though it appears existing or past litigation involving previous non-compete violations will not be affected. But no matter when you signed your non-compete agreement, it will become invalid, and new litigation about previous violations also presumably will not be allowed either.

This does NOT affect NDAs, which will still be allowed. This ruling only prevents companies from preventing employees from working for competitors in the same industry, or from starting their own company to compete with their former company.

I have mixed feelings about this.

It is definitely true that companies have increasingly used non-competes to underpay employees, and thwart competition regarding employees being able to leave their jobs for better pay or better conditions at competitors.

However, this also opens the door for former employees to start competing companies after learning the industry and internal secrets/procedures, thus giving themselves a leg up to compete in the future. It is not unreasonable, in my opinion, to have non-compete agreements in certain niche industries. There is always something gained by being an "insider" in a leading company in any industry. There's a balance between unfair non-competes and fairly protecting your company's interests.

I'll give you a simple example where a non-compete would be reasonable, and which will no longer be legal later this year:

Say I start a local window washing company, with an innovative new way to wash windows quickly and efficiently. However, being 52 years old, I don't want to do the manual labor, so I hire two younger guys, Joe and Mike, to do the actual washing. I teach them exactly what to do, I spend money marketing the business, and they become locally known as great window washers.

After 2 years. Joe and Mike realize that word has gotten around the area that they're the best window washers. They quit my company and start "Joe and Mike's Window Washing", and pitch that they were the ones actually doing the work for the top local window washing company for the past 2 years.

This would be LEGAL, unless I could show that they stole "trade secrets" with how to wash the windows, which would be hard, for obvious reasons.

This would be where a non-compete would make sense and be fair, such as one stating that Joe and Mike could not start their own window washing company within a 20 mile radius.

I feel the FTC should have just restricted non-competes, rather than eliminated them.

[GrenadaRoger]

not so fast there Druff...you missed a couple of details

1 - the ruling applies only to for profit businesses

2 - undoubtedly this ruling will be challenged in court by business interests (for example, the US Chamber of Commerce) on the grounds that the FTC cannot make such laws as that is the legislatures function, (injunction while the court system processes this through its procedural maze?)

while i like the ruling i think it is too early to celebrate

https://www.usatoday.com/story/money...ppress%20wages.

[tigerpiper]

I am a huge liberal, but this is just stupid.

A non-compete is a contract. Two people negotiate a contract, like buying a car. Why can the FTC step in and say "you can't buy that car." assuming both parties negotiate at arms length.

Oh! You say these are not at arms length. But that goes against everything we've heard in the past 4 years about labor having the power, even in fast food. If someone doesn't want a noncompete at Jimmy Johns, go next door to Subway.

Noncompetes are already restricted by law (various tests like geographical limit, topic, speciality etc.) The FTC stepping in with no mandate from Congress (like a voted on law) is administrative regulatory overreach.

Oh! You say Congress can't pass anything. A) Wrong- it just passed Ukraine whatnot bipartisanly, and 2) then that means maybe the people don't want X. If people want X, then either Congress gets it done or the people vote them out for a Congress that does, and if neither happened, maybe the people don't want X or care about something else more.

[tigerpiper]

And Grenadaroger is right- lawsuit all the way up and this has no chance. No chance.

Third FTC argument is this is an unfair trade practice that Congress already said we can regulate with rules in the FTC Act. No chance this works as when the FTC Act was passed, noncompetes (with the court limits I already mentioned) were legal, so Congress could not have meant they were an unfair trade practice when they passed the FTC Act.

[Sanlmar]

And Grenadaroger is right- lawsuit all the way up and this has no chance. No chance.

Third FTC argument is this is an unfair trade practice that Congress already said we can regulate with rules in the FTC Act. No chance this works as when the FTC Act was passed, noncompetes (with the court limits I already mentioned) were legal, so Congress could not have meant they were an unfair trade practice when they passed the FTC Act.

You are not calling on our customers a week after you leave. That’s never happening

[Dan Druff]

I think it's not as simple as saying, "If you don't like the non-compete, don't sign it."

That's an option if you're looking for a position where there's little competition for the job, and the companies offering the position are plentiful.

However, that's often not the reality. When looking for work in your field, if a job opening comes up which is otherwise good, and it comes with a non-compete, you're often signing it now and worrying about the consequences later. And that fucks these employees.

The fundamental question should come down to whether non-competes are fair or not.

In some cases they are fair. My window washing example was a good example. In other cases, they're overly restrictive. If you're an air conditioning tech, and a company makes you sign a non-compete for a 50 mile radius, you're basically stuck working for them unless you want to either move or do an insane commute.

[Jayjami]

I think it's not as simple as saying, "If you don't like the non-compete, don't sign it."

That's an option if you're looking for a position where there's little competition for the job, and the companies offering the position are plentiful.

However, that's often not the reality. When looking for work in your field, if a job opening comes up which is otherwise good, and it comes with a non-compete, you're often signing it now and worrying about the consequences later. And that fucks these employees.

The fundamental question should come down to whether non-competes are fair or not.

In some cases they are fair. My window washing example was a good example. In other cases, they're overly restrictive. If you're an air conditioning tech, and a company makes you sign a non-compete for a 50 mile radius, you're basically stuck working for them unless you want to either move or do an insane commute.

In California, non compete agreements must be reasonable in scope and time, otherwise the courts will not enforce them, but they are usually upheld. The argument that they are adhesion contacts, where there is little choice but to sign, is not very successful. Especially where managerial and professional employees are concerned.

[tigerpiper]

There already are fairness restrictions on them, Druff. That's the "common law" that was in place when the FTC Act was passed.

So a Subway sandwich noncompete is unlikely to ever be enforced right now, so long as its not an executive or recipe inventor or something special.

Fairness restrictions include reasonable time period, geography, and scope given the job in question.

[Dan Druff]

There already are fairness restrictions on them, Druff. That's the "common law" that was in place when the FTC Act was passed.

So a Subway sandwich noncompete is unlikely to ever be enforced right now, so long as its not an executive or recipe inventor or something special.

Fairness restrictions include reasonable time period, geography, and scope given the job in question.

Have you followed the whole thing with Jared Monroe (Mitello) and Steven Crowder?

It's a bizarre story surrounding an after-the-fact non-compete/NDA.

Short version is that Jared, who had been with the show since its infancy and had a huge part in its growth, wanted to leave in 2018. There was no existing non-compete or NDA at the time. Since the show was huge and had a lot of money backing it, Jared (who never made much money there, despite his key role) was threatened upon his notice of departure.

He was presented with a restrictive non-compete and NDA. He was told they would make life absolutely hell for him if he didn't sign it, claiming that revealing any behind-the-scenes info would be damaging to them and tortious, and any attempt to work on a similar show would be considered stealing of trade secrets. Basically it was made clear that, win or lose, he and any new employer would be in for a long and expensive legal battle.

He panicked and signed one which, among other things, prevented him from working in "comedy" or political media. In return he was given a small carveout which allowed him to take one specific job within the same umbrella of shows (CRTV). Eventually they decided his new job was too similar to his old one (even though it wasn't) and got his employer to fire him.

I think of this when non-competes are discussed. Whether litigation would hold up (or even come to exist at all) is immaterial if the non-compete can be used to bully employees. The threat of being sued by someone/something with deep pockets is often more effective than the litigation itself.

I know you two are lawyers and I don't have to tell you that. You guys know more about the law than me, obviously. But you don't have to be a lawyer to see how the potential threat of litigation scares the fuck out of a lot of people.

[NickyPipes]

Non competes are bullshit and completely unfair except in extreme circumstances

Just blocks employees from opportunities and advancing their lives