Future Implications of Noncompete Agreements

Big news on noncompetes—from two very different directions. First, the NLRB just quietly backed off its aggressive stance that most noncompetes violate federal labor law. The agency's Acting General Counsel rescinded 2023's memo that took that position, signaling a retreat from treating noncompetes as an unfair labor practice. Meanwhile, Ohio lawmakers are headed in the opposite direction. Last month, they introduced SB 11, a bipartisan bill that would ban nearly all noncompetes in the state. If it passes, it'll be a game-changer, giving employees much more freedom to jump to competitors. The contrast is pretty stark. While the NLRB is easing up, state legislatures are doubling down on efforts to kill noncompetes. And it's not just Ohio—at least a dozen states, both red and blue, have already taken action to limit or ban them. What does this mean for employers? Don't assume noncompetes are going to stick around. Even if the NLRB is slowing its roll, the bigger trend is clear: these agreements are on the chopping block. Now's the time to rethink your approach to restrictive covenants. Here's my suggestion: 📃 If you're worried about protecting confidential information, a non-disclosure agreement (NDA) might be all you need. 📃 If you don't want employees poaching your customers, employees, or vendors, a non-solicit (plus an NDA) should do the trick. 📃 If an employee's role is so unique that their departure to a competitor would cause real damage, then—and only then—should you consider a noncompete (plus an NDA and non-solicit). The key is common sense. Don't overuse noncompetes just because you can. Tailor your agreements to what you actually need to protect. Otherwise, you're just throwing money away trying to enforce a contract that might not hold up in court. And while that's great for lawyers like me, it's terrible for your business.

I promise this isn't just another post recapping the FTC's rule banning non-competes. Instead, I'm going to do a deeper dive into what I've been hearing the last few days beyond the headlines. Indeed, I've seen few posts looking beyond it says to think about the strategy that C-level suite executives should be thinking about. So now that we've had a few days to consider the proposed rule, here's some additional items to think about: 1) The US Chamber of Commerce has now filed its anticipated lawsuit challenging the rule and it has done so in Texas, which has judges that have imposed nationwide injunctions on certain Biden administration rules. Thus, it is far from a sure thing that this rule will go live in four months; in fact, I'd argue that it is far more likely we'll see a delay. That’s not to say that employers should ignore the rule. Far from it. But it also means that employers should be mindful that this isn’t quite written in stone yet. Analyze it but don't panic about it. 2) Let's suppose though that the rule goes into place. Employers will want to think about what protections it needs with what employees and at what levels. That means that you might have different versions of restrictive covenant agreements for different levels of employees. Will non-service agreements (where employees agree not only to not solicit customers, but not to service customers) be enforceable under this? What about provisions that provide a financial incentive to an employee to stay (but don't explicitly ban an employee from working from a competitor)? How will partnership agreements be enforced, particularly where an employee may be part worker and part partner? 3) The provisions regarding an asset sale of a business are going to cause heartburn for transactions. As the rule is currently phrased, non-competes may still be valid pursuant to a sale of a business or all (or substantially all) of a business's assets. The asset sale provisions contemplate "all or substantially all" of the assets to allow a non-compete to be enforceable. So what happens when a business sells off a portion of itself? And what types of people will be covered by this? Owners? Senior executives? Or any "person" since that language is used in this clause versus "worker" elsewhere? 4) While a lot has been made about how employers can protect their employees from leaving, employers should also consider the flip-side --- how can you use this to attract employees who might otherwise have been off limits to you? Are there competitors that have vulnerabilities that you might look to hire from? As the FTC projects, this rule may force companies to make their workplaces attractive to work for by increasing compensation, enhancing benefits, and emphasizing work culture. Regardless of whether the rule goes into place, executives should be considering how this rule might impact recruiting and retention efforts. There's a lot to consider. Go beyond the headlines.

Banning of Non-Competes The ban on non-compete agreements is anticipated to have significant positive effects on the U.S. economy by promoting worker mobility, increasing wages, and fostering innovation. It may take a few more years for this to go into effect assuming the new legislation successfully makes it way through our court systems. There are a lot of companies that do no want to see non-competes banned. These companies will spend a great deal of money fighting and trying to halt the passing of the legislation which is led by the Federal Trade Commission. Here are some key impacts derived from recent studies and regulatory actions: 1. Increased Worker Mobility and Wages: The Federal Trade Commission (FTC) estimates that the prohibition of non-compete clauses could potentially increase workers' earnings by nearly $300 billion annually. By eliminating these clauses, workers are free to move between jobs more easily, which can lead to higher wages as businesses compete to attract and retain talent. 2. Boost in Innovation and New Businesses: Research suggests that non-compete agreements have historically stifled innovation by limiting the spread of ideas and skills across companies. With the ban, there's an expected increase in innovation and a higher rate of new business formation, particularly as workers are able to start their own ventures without the restrictions previously imposed by non-competes. 3. Impact on Health Care and Other Sectors: In specific sectors like healthcare, non-competes have restricted clinicians from moving freely, which can affect patient care continuity and access to preferred healthcare providers. The removal of these agreements can thus not only improve conditions for healthcare workers but also potentially lead to better health outcomes for patients by increasing access to specialists. 4. General Economic Benefits: By allowing for greater job movement and reducing barriers to employment transitions, the economy could benefit from more dynamic labor markets. This can lead to more efficient allocation of labor, reduced unemployment durations, and greater overall economic productivity. In essence, the banning of non-compete agreements is expected to create a more competitive and fluid labor market, enhance the entrepreneurial ecosystem, and contribute to overall economic growth by making it easier for workers to change jobs and leverage their skills more freely across different opportunities.

Noncompetes are now unenforceable! Well, that’s not quite true, despite the headlines. This is what is true, and is something I’m following as a lawyer who drafts/negotiates #noncompete provisions along with litigating them (I have 2 upcoming trials primarily focused on the enforceability of such clauses): On April 23, the Federal Trade Commission (#FTC) issued a final rule to ban many, but not all, #noncompetes across the United States. The rule isn’t effective until 120 days after publication in the Federal Register. So, don’t go to your boss’ office today, stick up your middle finger, and tell him or her to shove the noncompete where the sun doesn’t shine. Furthermore, there is an exception. Existing noncompetes for senior executives can remain in force under the FTC’s final rule, but employers are banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives. Additionally, there is a possibility that the rule never becomes effective. The expectation is that litigation will soon commence over whether the ban is proper, with a request that the FTC’s rule be stayed in the meantime. Importantly, whether or not the rule withstands challenge, there are mechanisms employers can use to protect their proprietary information, which they should be examining irrespective of the outcome. As the FTC has noted, secret laws and non-disclosure agreements (NDAs) both provide employers with well-established means to protect proprietary and other sensitive information. Some say NDAs aren’t worth the paper they’re printed on; I’m currently in the middle of a multi-million dollar case involving the breach of one, so we shall see! If you have any questions about the above, then feel free to contact me! https://lnkd.in/eihUvXP8

🚀 Breaking Boundaries: Why the Tech Industry Must Embrace the FTC’s Move to Ban Non-Competes 🚀 Big news from the tech frontier! The U.S. Federal Trade Commission (FTC) has made a bold move to ban non-compete agreements, an action set to redefine the dynamics of our industry. This decision, championed by FTC Chair Lina Khan, couldn't be more timely. 🔗 Why This Matters: Non-compete agreements have long stifled innovation and mobility within the tech sector. By unnecessarily chaining talented professionals to single companies, we've dampened the spirited competition and rapid innovation synonymous with our industry. 💡 The Potential Impact? The FTC projects that removing these restraints could boost worker earnings by up to $488 billion over the next decade and catalyze the creation of over 8,500 new businesses annually. Imagine the fresh ideas and bold ventures that await when thinkers and builders are free to explore! 👥 Diverse Voices: While the decision has seen pushback from several quarters citing concerns over trade secrets, it’s crucial to remember that protecting intellectual property doesn't necessitate restricting career mobility. Effective nondisclosure and confidentiality agreements can serve this purpose, with less detriment to worker independence and without stifling competition. 🚀 Looking Forward: As tech professionals, we thrive on innovation, agility, and continuous learning. The FTC’s decision is not just a win for individual tech workers, but for the industry as a whole. It encourages a freer exchange of ideas, more start-ups, and a healthier competitive environment that can lead to more significant advancements and more robust growth. 📈 A Call to Action: Let's advocate for policies that support vibrant competition and innovation. Share your thoughts on how we can further enhance freedom and creativity in the tech industry, transforming challenges into opportunities for growth! #TechIndustry #Innovation #NonCompete #FTCRuling #CareerMobility #FutureOfWork https://lnkd.in/gYN-ta4t 

Two major changes to employment law worth noting. The impact on all industries and professions will be significant. The FTC approved its final rule that essentially bars and invalidates noncompete agreements with almost all employees. There are some limited exceptions for senior executives, but this is a big change that will likely face some legal challenges. Without legal action or stay, the rule will go into effect within 120 days of its publication. The DOL announced its updated federal overtime rule, which raises the salary threshold for several exemptions by nearly 65%, up to $1,128/week (versus the current $685/week). Employers will be expected to comply as of January 1, 2025. If exempt employees are not receiving salaries of at least that level by then, they could lose their exemptions and become entitled to overtime.

The FTC's Non-Compete Ban: Potential Impact on Innovation and Legal Challenges Ahead The Federal Trade Commission (FTC) recently announced a new rule banning most non-compete agreements across the United States. The rule, set to take effect in August 2024, aims to increase worker mobility and knowledge sharing, which the FTC believes will lead to increased innovation and a more robust #patent system. The FTC argues that by allowing skilled workers to move more freely between companies and share their knowledge, the rule will create a more dynamic and innovative environment. They project that loosening non-compete constraints could lead to thousands of new patents each year, as increased worker mobility stimulates greater innovative activity. However, the rule faces significant legal challenges. The U.S. Chamber of Commerce and Ryan have both filed lawsuits challenging the FTC's authority to issue this rule and seeking nationwide injunctions against its implementation. In the Eastern District of Texas, Judge J. Campbell Barker has set an expedited schedule to resolve the case, consolidating the preliminary injunction hearing with a trial on the merits and considering summary judgment on the same schedule. This timeline aims to allow for potential appellate review before the rule's implementation deadline. More here: https://lnkd.in/gTUUsyKQ

NON-COMPETE AGREEMENTS are something I've had to deal with many different times throughout my career. They have always been incredibly one-sided, often times unfairly very broad, and usually do more harm than good for all parties involved. Today's ruling by the Federal Trade Commission - while NOT yet final - is a BIG step forward! Making non-competes generally unenforceable will dramatically increase innovation, force companies to do more to retain the best talent, and remove unfair and restrictive practices related to job eliminations. In my industry of cutting-edge, advanced technologies (such as Artificial Intelligence and Machine Learning), where some of the best employees are often looking to align with the strongest - or most exciting - companies, this potential step forward will open up all sorts of opportunities for employees at ALL levels. And it will allow more people to take the leap and become entrepreneurs in the industry they know best. The final rule provides that non-compete clauses "are an unfair method of competition". Very interesting to see how this plays out (I believe it will become more official/effective in 120 days) and how it will be challenged in court by individual businesses, states, lobbyists and others. What are your thoughts on non-compete clauses? #FTC #FederalTradeCommission #noncompeteclause #noncompete #laborlaw xZactly.ai

"More US workers will soon be free to leave their employers to work for rivals, thanks to a new federal rule that will block the long-standing practice of locking in workers with noncompete agreements. "The US Federal Trade Commission on Tuesday issued a final rule that bans most noncompetes nationwide. The agency estimated that by allowing people more freedom, the change would lead to the creation of 8,500 new businesses annually, an average annual pay increase of $524 for workers, lower health care costs, and as many as 29,000 more patents each year for the next decade. "The FTC says about one in five US workers are bound by contract clauses that prevent them from taking new jobs from a competitor, or starting their own competing businesses, for some period of time. The agreements can trap workers and slow career advancement and wage increases—two things workers often achieve by hopping jobs. "The agreements also disproportionately affect workers in tech and certain other roles: 36 percent of engineers and architects work under noncompetes, as do 35 percent of workers in computer and math fields, according to research from the Universities of Maryland and Michigan." #noncompete

The FTC has recently passed regulations against non-compete clauses on a federal level in all work contracts. Starting in the fall of 2024, agencies will have new rules to comply with regarding their employees and independent contractors.  This will be a big shake-up for many agency owners, but luckily, Sharon Toerek is always by our side to walk us through any new legal requirements that hit us unexpectedly. In this episode, she covers a lot of ground on how agency owners can comply with the new FTC non-compete rules for both employees and independent contractors.  We cover the difference between non-competes and non-solicitation agreements, how agency owners can prepare to announce these changes to their workers, and how we can still legally protect our IP and client relationships.  Sharon stresses that the quicker we start working on compliance, the better prepared we’ll be for when this goes into effect in a few months. So don’t delay — tune in to learn how this affects your agency and how to get ahead on compliance over the summer. https://bit.ly/3yU1GW5 [Sponsored by White Label IQ: https://bit.ly/3abMMrU]