336 - What the FTC's Ban on Non-Competes Means For You

On today's episode of the podcast I'm giving you some must-know legal updates about non-compete agreements.

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A couple weeks ago, the Federal Trade Commission (FTC) took a vote on Non-Compete Agreements and made a 570 page publication and we're going to take an aerial view on those key takeaways.

The FTC's job is to protect the public from deceptive or unfair business practices and from unfair methods of competition. It's a federal agency that's been around since Woodrow Wilson's presidency. The FTC is put together by Congress, consider Congress the parent and the FTC the babysitter that enforces the rules.

The FTC was asked "can businesses limit a worker's employment option after they leave the company?" 570 pages later, the answer is no, that's unfair competition.

Let's dive into why this is unfair and totally bullshit there are three broad reasons we'll touch on with examples.

  1. The FTC says this is why non-competes restrict the freedoms of American workers and suppress wages. Example: Elle is an attorney for Louis Vuitton. LV has her sign a non-compete agreement saying she won't work for another luxury handbag company for two years after her employment with LV ends. She's not sure where to go from there when she's ready to leave because she can't go work for another luxury handbag company and she can't apply and use that offer to leverage benefits to stay at LV.

  2. Non-competes stifle new businesses and new ideas. Example: Elle can't start her own fashion handbag company or team up with her friend to consult on her luxury handbag company.

  3. They impact too many people. Example: Elle decides to focus on her philanthropy until her non-compete expires. Looking at jobs with other luxury handbag companies, she sees that they all have non-competes as well. They're widespread in the US economy and one in five workers is subject to a non-compete (~30 million people).

It's also wild how many people don't even know they've signed a non-compete until they get sued later on because a lot of times a non-compete can be a single term deep within a contract. It's often overlooked and commonly lumped together with a non-disclosure agreement.

On the flip side, if you are the issuer of a non-compete, you're going to need to take it out now and check any contract templates you use or previously drafted attorney contracts to make sure it is removed.

A large portion of effected non-compete workers are in healthcare, not great for public health when we had a global pandemic and they were prevented from working where the need was greatest.

Any time a federal agency has an idea for a new rule, they have to open it up to the public for comment and then they have to respond to those comments otherwise a court will smack down the rule for not being well thought out. This rule had 26,000 comments, of which 25,000 supported a total ban on non-competes.

There are some exceptions for senior executives, mainly that if you're a senior executive under a non-compete you still have to follow it, but there can't be any new non-competes.

To draw some attention to the legalese, it says "worker." It goes on to say "worker, including but not limited to an employee, independent contractor, extern, intern, volunteer, apprentice or sole proprietor who provides a service to a person." The only exception is the senior executive.

They include a part in this rule that allows it to stack with state laws so if your state has a rule against non-competes, you're in trouble with both the FTC and the state.

Are you fucked if you've had people sign non-competes for your business? No. If you as a business had any worker sign a non-compete, you can get unf*cked you just have to send a notice to them saying you can't and won't enforce it. You have a little bit of time, this rule is not in effect until 120 days after it gets published in the national register. During that time, go to the FTC's website and find their model notices. There you'll find the language to use to inform people about not enforcing your non-competes. Using this exact language will protect you under the safe harbor provision. You can access that at https://www.ftc.gov/system/files/ftc_gov/images/new-rule-image-noncompete-rulev3.png

The rule is going to face some challenges. The US Chamber of Commerce has called this rule a blatant power grab and is going to sue the FTC and say that Congress never intended to grant the FTC the power to do this. The FTC's document addresses these concerns and there are already states that have their own non-compete bans already in place.

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