FTC talking about outlawing non-compete clauses

Why would this--rather HOW could this--come from a bureaucratic agency, rather than the leg'v branch (Congress), or from the Judiciary (SCOTUS or federal court)? Seems like FTC overstepping their bounds on its face. A single federal bureaucratic agency...overruling state laws...

e.g.: Florida Statutes Section 542.335:

 Valid restraints of trade or commerce.—

(1) Notwithstanding s. 542.18 and subsection (2), enforcement of contracts that restrict or prohibit competition during or after the term of restrictive covenants, so long as such contracts are reasonable in time, area, and line of business, is not prohibited. In any action concerning enforcement of a restrictive covenant:
(a) A court shall not enforce a restrictive covenant unless it is set forth in a writing signed by the person against whom enforcement is sought.
(b) The person seeking enforcement of a restrictive covenant shall plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant. The term “legitimate business interest” includes, but is not limited to:
1. Trade secrets, as defined in s. 688.002(4).
2. Valuable confidential business or professional information that otherwise does not qualify as trade secrets.
3. Substantial relationships with specific prospective or existing customers, patients, or clients.
4. Customer, patient, or client goodwill associated with:
a. An ongoing business or professional practice, by way of trade name, trademark, service mark, or “trade dress”;
b. A specific geographic location; or
c. A specific marketing or trade area.
5. Extraordinary or specialized training.

Any restrictive covenant not supported by a legitimate business interest is unlawful and is void and unenforceable.

(c) A person seeking enforcement of a restrictive covenant also shall plead and prove that the contractually specified restraint is reasonably necessary to protect the legitimate business interest or interests justifying the restriction. If a person seeking enforcement of the restrictive covenant establishes prima facie that the restraint is reasonably necessary, the person opposing enforcement has the burden of establishing that the contractually specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the established legitimate business interest or interests. If a contractually specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the legitimate business interest or interests, a court shall modify the restraint and grant only the relief reasonably necessary to protect such interest or interests.
(d) In determining the reasonableness in time of a postterm restrictive covenant not predicated upon the protection of trade secrets, a court shall apply the following rebuttable presumptions:
1. In the case of a restrictive covenant sought to be enforced against a former employee, agent, or independent contractor, and not associated with the sale of all or a part of:
a. The assets of a business or professional practice, or
b. The shares of a corporation, or
c. A partnership interest, or
d. A limited liability company membership, or
e. An equity interest, of any other type, in a business or professional practice,
a court shall presume reasonable in time any restraint 6 months or less in duration and shall presume unreasonable in time any restraint more than 2 years in duration.

...


Statutes & Constitution :View Statutes : Online Sunshine


Isn't the FTC part of the Executive branch? i.e.--limited to enforcing the laws that are on the books, not re-writing the books???

WTH?​

 

FTC votes to ban noncompete agreements | The Hill

The Federal Trade Commission (FTC) voted 3-2 Tuesday to ban noncompete agreements that prevent tens of millions of employees from working for competitors or starting a competing business after they leave a job.

From fast food workers to CEOs, the FTC estimates 18 percent of the U.S. workforce is covered by noncompete agreements — around 30 million people.

The final rule would ban new noncompete agreements for all workers and require companies to let current and past employees know they won’t enforce them. Companies will also have to throw out existing noncompete agreements for most employees, although in a change from the original proposal, the agreements may remain in effect for senior executives.

****

The new rule is slated to go into effect in 120 days after it’s published in the Federal Register. But its future is uncertain, as pro-business groups opposing the rule are expected to take legal action to block its implementation.

 

I’ve been limited by non-competes most of my career. My guess is this will increase executive pay.

 

Doesn't everything?

 

I was initially surprised when I saw this announcement that there wasn't a media mention of legal challenges being anticipated. I just read that there are.

I also wasn't certain what had been litigated during the rule making process, which could impact the likelihood of success in litigation against the rule as adopted. But either way, expect the conservative judiciary to be a major obstacle to ever having this new rule see reality.

Also, and this may be covered in items I haven't read yet, but also expect there to be more attempts to limit an employee's ability to go to a competitor biology misuse of trade secrets, which have always been intermingled.

Just some observations

 

Lol no.

I can see arguments both ways.

At minimum non-compete clauses should pass a high standard to be enforceable.

Can a policy case be made that they are sometimes reasonable? Probably. But I won’t lose much sleep if they go away altogether.

 

They have no right to change laws. The can only interpret details of existing laws. One more reason why the Chevron Doctrine... Chevron Deference will be revisited by the SCOTUS.

Below is the simplest most succinct version to read and understand.

The 'Chevron' Doctrine in Peril: A Closer Look at 'Loper' | The Legal Intelligencer

 

After further review this doesnt really change the rule for senior executives. If you make $155K or more AND you are in a policy setting position you can still be forced into a non-compete. Probably the right way to look at it. Policy setting really limits the impact to c-suite people for the most part.

 

Doesn't change the rule for EXISTING non-competes, but from what I've seen, new ones cannot be established even at the senior executive level

 

Don't worry the bosses have already filed in court to challenge the rule, so you can just congratulate me for being right about the people that actually have the power to force these on people.

 

Hmm. Well then I reverse my self again, again, and Im back to thinking it will raise exec pay. Oh boy. The rank and file elimination of non-competes is great for the worker though.

 

Two things. First, however much part of a rule makes sense in the abstract, it will be prone to attempts to circumvent the rationale. A ton of employees will suddenly get job descriptions that claim they set policy, and they will even sit in on a meeting or two for appearances, but will have no say in actual policy.

Second, the existing Florida statute tries to strike a balance such that a noncompete is not enforceable unless it protects a legitimate business interest, which by form does not cover lower level employees, although again they try to make you sign that you are receiving valuable training and learning true trade secrets on the job, which often is BS, but the employee being restrained will get shut down temporarily and have to litigate it:

(1) Notwithstanding s. 542.18 and subsection (2), enforcement of contracts that restrict or prohibit competition during or after the term of restrictive covenants, so long as such contracts are reasonable in time, area, and line of business, is not prohibited. In any action concerning enforcement of a restrictive covenant:
(a) A court shall not enforce a restrictive covenant unless it is set forth in a writing signed by the person against whom enforcement is sought.
(b) The person seeking enforcement of a restrictive covenant shall plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant. The term “legitimate business interest” includes, but is not limited to:
1. Trade secrets, as defined in s. 688.002(4).
2. Valuable confidential business or professional information that otherwise does not qualify as trade secrets.
3. Substantial relationships with specific prospective or existing customers, patients, or clients.
4. Customer, patient, or client goodwill associated with:
a. An ongoing business or professional practice, by way of trade name, trademark, service mark, or “trade dress”;
b. A specific geographic location; or
c. A specific marketing or trade area.
5. Extraordinary or specialized training.

The FTC did have language that trade secret litigation, which is a separate statute, is still available. But it defines true trade secrets somewhat tightly, to wit:

(4) “Trade secret” means information, including a formula, pattern, compilation, program, device, method, technique, or process that:
(a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

 

You mean the benefitting parties of the non-compete clauses want to keep them?

Who knew?

 

Remember that overlying a lot of this is the fact that tech companies are routinely found (this is from 2010 but it keeps occurring) to informally collude to not pursue hires from competitors even without an agreement! I know, shocking that the libertarian tech bros could act in a predatory manner instead of just increasing freedom and not being evil

Justice Department Requires Six High Tech Companies to Stop Entering into Anticompetitive Employee Solicitation Agreements

https://knowledge.wharton.upenn.edu...aching-case-growing-debate-employee-mobility/

 

They know who the courts serve

 

Pretty fair post on the issue. I've litigated on both sides of this issue and FL statutes for 2+ decades. The legislature has done a really good job to make the law reasonable/fair, but the application of the statutes to reality is always the difficulty. In short (not intended as legal advice and none of you are my client):

542.18 makes all restraints on trade (i.e., non-competes) invalid.

542.335 permits the enforcement of a non-compete to the extent it is found to protect/preserve a legitimate business interest ("LBI") (e.g., trade secrets, specialized marketing, client lists, etc. - see statute for list). VERY IMPORTANT NOTE: mere competition is not an LBI deserving protection. If the former employer ("ER") demonstrates a prima facia LBI and damages, then burden shifts to former employee ("EE") to prove relief (money damages or injunction) are not warranted. The scope of the non-compete (duration, geographical area, etc.), if enforceable, may be altered by the Court to fit the situation. Thus, as I tell all clients, it really doesn't matter what the written terms are (1 year, 3 years, 10 miles, 1,000 miles, etc.), because a judge would ultimately determine what is reasonable - the statute does provide some presumptions as to time/geography, but those are guidelines. The policy goal is to protect ER's from EE's having an unfair advantage in the market due to EE's experience/time/knowledge gained while employed with ER; and, to permit EE's to pursue their chosen interests.

In my opinion, this is a pretty good attempt at legislating, but it is really difficult to apply. A non-compete may be found enforceable in one situation, but not another for a number of known/unknown reasons/differences that are specific to each person/employer. This creates uncertainty which more often than not favors the ER who can usually better fund the litigation. And, this is expensive litigation from the very start - the race to an early hearing (say, in about 2-3 months) on a motion for temporary injunction pretty much will determine the outcome of the case - the winner at that hearing will almost always prevail if the case is taken all the way to a trial that often won't be held for another year later.

All that said, this is not an area that FTC needs to impose itself. Each state should determine these issues for what works in their respective states. I appreciate that these issues touch on interstate commerce, and thus the feds have a basis to claim jurisdiction. However, more importantly, these agreements derive from the common law right to contract and for the parties to a contract to negotiate and determine the terms of the contract - thus, individual in nature. It's not a black and white debate to be sure, but the FTC's involvement is taking a wrecking ball to an area of the law that is best left to those closest to the issues.

As for MD's, the agreements are enforceable if LBI is proven. That said, an MD can avoid enforcement by (a) not soliciting or taking patients from former ER; and/or (b) demonstrating public need for his/her services. Again, it's no clear answer, but the law does recognize the nature of medical services in society.

Of course, lawyers are exempt from non-competes. Don't like it - then fill the legislature and judiciary with non-lawyers. ; ) Beyond that joke, lawyers are exempt to avoid conflicts and to preserve client confidentiality.

 

Chamber of Commerce has already gotten the rule enjoined

Not technically, but effectively they have. They filed before a judge that will rule reliably, without reference to existing legal standards, or maybe using the standardless "Major questions" doctrine, or some other illogical reasoning fabricated for situations like this

The Chamber of Commerce barely waited a day to sue the FTC over its recent decision to ban noncompete agreements. The New York Times tells the story:

The lawsuit, filed in a U.S. District Court in Texas....

I am shocked. However, my prediction from yesterday got the compass wrong. I figured the Chamber would sue in the northern district of Texas, but instead they sued in the Tyler division of the eastern district. Nonetheless, both judges in the Tyler division are Trump appointees, and one of them, Campbell Barker, struck down the federal eviction moratorium in 2021 and an NLRB rule a few weeks ago. The Chamber should be in good hands.
Chamber of Commerce sues to overturn noncompete ban. Can you guess where they did it? - Kevin Drum

 

Agree, except that I'd go with language a bit stronger than "...this is not an area that FTC needs to impose itself..."

More like this is the FTC saying "screw the constitution; hold my beer SCOTUS; to hell with the legislature; we don't like the law of the land, including every state statute on point, and any and every body of jurisprudence developed therefrom, and therefor we're going to re-write it to our taste...".

It is a grotesque over reach that ought to be universally slammed and shut down by every branch of government, at every level, and by every state (perhaps save the POTUS, since it's coming from the executive branch, and translates into more concentrated power to the POTUS<---Caution--careful what you wish for--what *your* POTUS can do today, can be undone, or used by the other guy's POTUS against *your* interests just as easily).

NB: that's generic *your*, since I really don't know anything about your politics.

NB 2: IF non-competes are a problem, that is something that ought to come through our duly elected representatives, not from on high bureaucrats.

jmho/fwiw.

 

There is law establishing the FTC, and laws against business collusion and unfair business practices. A litigator could just as easily argue forced noncompetes are already illegal in a lot of cases due to their fundamentally anti-competitive nature. Probably some labor laws that could come into play around that too.


I can see some limited cases where non-competes have validity. For exmpl if you invent something proprietary or novel, then sell your company. The acquiring entity would have an interest in the seller not turning right back around and replicating the same thing, thereby immediately devaluing the transaction. But other than certain situations like that, “normal” employees should not face restriction or have their value diminished. Everything about that is anti-competition and anti-freedom. Sadly typical of “freedom lovers” to want to defend such anti-market and anti-competition practices, but it’s hardly surprising considering the same sorts would also have us focus on the brighter side of slavery. Think of those valuable learned blacksmithing skills y’all!