Speaker 1: 0:20

It's Mark and welcome back. Today we're talking about a very important topic. The Federal Trade Commission ban on non-compete agreements nationwide for 30 million employees and executives, and a hotly disputed legal dispute is to follow. On April 23, 2024, the Federal Trade Commission approved a ban on non-competition agreements nationwide. That has been well anticipated and now hotly contested. On May 7, 2024, the final rule banning non-compete agreements will be published in the Federal Register and become effective on September 4, 2024. So mark your calendars. That's the date your non-compete expires, unless you were sued, if not then joined, by a federal court in Texas. The ban will eliminate non-competition agreements for nearly 30 million employees, as I said, and will only be enforced for executives earning more than $151,000 who have a policy-making position, such as a CEO. You can read the complete sub-supplementary information published in the Federal Register, which, as I have looked it up, it's 547 pages long. It tells you everything you want to know and a lot more. It talks about all the various comments and the criticisms, and I can put it in the show notes. In essence, the rule provides quote for workers who are not senior executives. Existing non-competes are no longer enforceable after the final rule's effective date, that's September 4, 2024. Employers must provide such workers existing non-compete notices that they are no longer enforceable. To facilitate compliance and minimize burden, the final rule includes model language for the employer that satisfies the notice requirement.

Speaker 1: 2:07

The final rule provides that, with respect to a worker other than a senior executive, it is an unfair method of competition for a person to enter into or attempt to enter into a non-compete clause, to enforce or attempt to enforce a non-compete clause or to represent that the worker is subject to a non-compete clause. End quote. The rule defines non-compete clauses to mean a term or condition of employment that prohibits a worker from or penalizing a worker for or functions to prevent the worker from. Number one seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment. That includes the term of condition, and they use the term of condition referring to the non-compete agreement. Number two operating a business in the United States after the conclusion of the employment. That includes the term of condition. Again, the non-compete provision, again the non-competed provision. The final rule further provides that, for purpose of the final rule, term or condition of employment includes, but not limited to, a contractual term or workplace policy, whether written or oral.

Speaker 1: 3:16

I don't write these rules. The agency does. It could be more clear about this. It's a non-making authority, which is a very important phrase they've used, and it defined it as quote final authority to make policy decisions that control significant aspects of a business entity, end quote and identifies executive titles such as the president and CEO or the equivalent. This definition, in my opinion, is unambiguous and narrows the types of executives still bound by non-compete agreements.

Speaker 1: 3:46

The rationale for the exception is simple High-level executives, such as presidents and CEOs, are exposed to essential trade secrets and business planning information during their employment and are extremely dangerous to the company if permitted to seek employment with a competitor. That sounds rational. Reasonable Courts agree as well, and those agreements usually are enforced and most executives don't find themselves challenged by their employers in those contexts. If you're a CEO or president, there are two important and big exceptions to the rule. The rule does not prohibit non-compete agreements entered into by a person pursuant to a bona fide sale of a business entity. Some states like Connecticut, have that same rule. The most important exception that is time limited is that the rule does not apply to currently pending and future lawsuits filed against employees and executives prior to September 4, 2024, the effective date of the rule. Maybe there will be a rush by employers to file injunctive relief actions lawsuits prior to the deadline, who knows? This now means 30 million employees are free agents and can switch employment to work for competitors at their leisure.

Speaker 1: 5:01

The rule does not eliminate employee nonddisclosure agreements, ndas and trade secret laws, which remain the tools employers use to safeguard against disclosure of confidential information. They were always there, present, but the employers sought to say that they needed some more protection and that's why the emergence or the use of non-competes. In reality, folks, the use of the non-compete agreement was a capitalistic economic grab. Unfair competition against another competitor had nothing to do with the employee at all. It just had something to do with the competitors and seeking out advantages.

Speaker 1: 5:41

Non-compete agreements have been a default management tool for nearly 200 years in this country. The earliest case was from 1837, alger versus Thatcher, I believe out of Massachusetts. I'll put the link in the show notes if you care to read something very old and antiquated. Employees have remained outraged and out leveraged for far too long. It took one pandemic and a bit of election season voter influencing by the Biden administration for employees to realize coercive non-compete agreements need to be eliminated. Nationwide State legislatures across the country partially agreed, passing various state initiatives to weaken, but not eliminate non-compete agreements. I'll put the links in the show notes as well so you can research that if you like. The FTC maintains an April 30, 2024 court pleading which I did look up on PACER in the Eastern District of Texas in the injunctive relief action filed by the US Chamber of Commerce against the agency. The FTC maintained the following Non-compete clauses, by their very definition, restrict competition in labor and product service markets by preventing individuals from moving freely to switch jobs or to start their own businesses.

Speaker 1: 6:58

As a result, non-compete suppresses wages, dampens innovation, prevents businesses from hiring the talent necessary to be successful and inhibits new businesses from starting businesses from starting. For many workers, the use of a non-compete is also coercive because contracts containing non-competes are forced upon them unilaterally under circumstances which they have little to no bargaining power vis-a-vis the employer. The FCC goes on to further state the commission also found that for non-senior executives, as defined by the final rule, the use of non-competes is exploitive and coercive conduct that similarly harms both labor markets and product and service markets. For these workers, the Commission concluded that the non-competes are almost always unilaterally imposed by employers who exploit their superior bargaining power to impose, without any meaningful negotiation or compensation, significant restrictions on workers' ability to leave for a better job or to engage in competitive activity. Non-competes thus force employers or workers to either stay in their job they want to leave or bear other significant harms and costs, such as leaving the workforce entirely or their field for a period of time I call it sitting on the bench and relocating out of their area, which does happen in particular doctors or violating the non-compete, in facing the risk of expensive and protective litigation, which I have participated in, protective Litigation which I have participated in the FTC Chair.

Speaker 1: 8:35

Lina Khan stated quote Non-compete clauses keep wages low, suppress new ideas and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created each year once the non-competes are banned. The FTC's final rule to ban non-competes will ensure Americans have the freedom to pursue a new job, start a new business or bring a new idea to market. Ms Khan has been criticized by pro-business lobby that she has had little experience after attending Yale Law School and then going into public service, that she was anointed by President Biden and given the task that led up to this rule. That is the criticism that I have read in the local papers. So the FTC press release stated Non-competes are a widespread and often exploitive practice imposing contractual conditions that prevent workers from taking a new job or starting a new business.

Speaker 1: 9:34

Non-competes often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to relocate or forced to leave the workforce altogether, or being forced to defend against expensive litigation. That's a repeat of what Chairman Kahn and the FCC have stated. An estimated 30 million workers nearly one in five Americans, are subject to non-competes. Now, on April 24th 2024, the US Chamber of Commerce if you don't know who they are, they are a very large pro-business lobby, along with the Business Roundtable, another pro-business lobby filed a complaint for injunctive relief in the Eastern District of Texas. A bit of forum shopping indeed, given the conservative leaning of the district court in Texas.

Speaker 1: 10:25

The chamber states on its website quote the Federal Trade Commission's decision to ban employer non-compete agreements across the country is not only unlawful, but also a blatant power grab that will undermine American businesses' ability to remain competitive. Since its inception over 100 years ago, the FTC has never been granted the constitutional authority to write its own competition rules. Non-compete agreements are either upheld or dismissed under well-established state laws governing their use. Big businesses face a regulatory onslaught as federal agencies pursue aggressive policy changes through regulation, preventing them from innovating, growing and hiring. End. Quote. Now the US Supreme Court is currently reviewing two cases, loper Bright Enterprises v Raimondo and Relentless Inc v Supreme Court is currently reviewing two cases, loper-bright Enterprises v Raimondo and Relentless Inc v Department of Commerce, challenging agency regulations and the deference courts give federal agencies. The chamber lawsuit follows in quick step to enjoin the FTC and the plaintiff. The chamber hopes the timing of the suit coincides with the US Supreme Court's Loper and Relentless decisions scaling back federal agency power and defer coincides with the US Supreme Court's loper and relentless decisions scaling back federal agency power and deferential treatment by the courts.

Speaker 1: 11:38

According to the complaint filed by the Chamber of Commerce. Quote the true strength of a company lies in its people. Recognizing this, many businesses invest considerable sums of training in training and development, developing their employees to maximize their potential and to hone their skills, and, in particular for companies in highly competitive and innovative industries, those same employees serve as guardians of businesses' second most valuable asset, which is the highly sensitive and proprietary information that allows them to succeed. End quote. No company exists without its employees. That's my opinion. However, when you place restrictions on an at-will employee's ability to leave and find similar employment, there is no loyalty by employees or among employees, only resentment. And I think you would probably agree. A majority of at-will employees already have previous experience in training and that is the reason why they were hired. The chamber's comment above presumes a focus on entry-level employees, which is misleading. Employers are already protected against potential for leakage of highly sensitive proprietary information in the form of nondisclosure and confidentiality agreements and trade laws that protect their interests.

Speaker 1: 12:54

The state of California the focus, the point of everything, technology in our country, namely Silicon Valley doesn't have non-competes and the employees are allowed to leave ebb and flow between the different companies and there's no issues. And what we do have is innovation, and what we do have is innovation. So when you have that example such as California, you ask yourself well, why do we need non-competes if that's the same thing that the employer in the Chamber of Commerce court case here I just read about is asking for? Non-competes need to go. Companies do just fine and they innovate. I can cite one good example of why non-competes can be destructive. The state of Massachusetts actually for years had a non-compete and the technology companies around the city of Boston. There's an area, that corridor. They sought to create the next Silicon Valley and, as we all understood, it failed and it didn't work because employees couldn't ebb and flow due to non-compete agreements.

Speaker 1: 14:02

The Chamber complaint further asserts the following Many businesses continue to rely on targeted non-compete agreements for these same reasons. Those agreements typically require that an employee agree, as a condition of employment or in exchange for compensation, that if he decides to leave the company, he will not work for the employer's competitors for a limited period of time thereafter. These agreements benefit employers and employees alike. I emphasize that part. The employer protects its workforce, investments in sensitive information and the worker benefits from increased training, access to more information and an opportunity to bargain for higher pay. You're probably scratching your head at this point, saying you never had the opportunity to bargain for higher pay in a non-compete deal, as you didn't. The problem with the above statement, in my opinion, is that the employees cannot choose in the marketplace because employers use non-compete agreements as a condition of employment. Employees can never negotiate the terms of these quote take it or leave it.

Speaker 1: 15:06

Non-compete agreements. In my experience negotiating non-compete agreements for new hires, there is no bargaining for higher pay. The only time my clients have had the opportunity to bargain for higher pay is when they are at the C-suite level and I insert an additional monetary compensation for sitting on the bench and not competing for a year after the employment ends. Regular employees lack any power to bargain for higher pay and the Chamber's assertion is false and misleading. The Chamber complaint also states by invalidating existing non-compete agreements and prohibiting businesses and their workers from entering into such agreements, going forward, the rule will force businesses all over the country, including in this district, the District of Texas, to turn to inadequate and expensive alternatives to protect their confidential information, such as non-disclosure agreements and trade secret lawsuits, and many co-workers, including highly skilled experts and executives, will be unable to bargain for increased compensation in return for non-compete agreements.

Speaker 1: 16:09

I'm sick and tired of this pro-business default management trope. Employers know full well they are well protected by non-isclosure agreements, except for one, mr Weinstein and his company. That's how we discovered his doings, so to speak, because a woman came out and breached her nondisclosure agreement, and hence the birth of the Me Too movement. Trade secret laws are routinely used by companies to go after offending employers employees for that matter and they function well by providing immediate relief for employers by the courts. Non-compete agreements were always in overreach and on September 4th 2024, will become illegal. On April 30th 2024, the Federal Trade Commission filed a motion to transfer venue from the Eastern District of Texas and Judge Jay Campbell Barker, a conservative judge, who is presiding in that case. In my opinion, the FTC wants a better venue in the Northern District of Texas where there was a corollary case filed. Actually, it was filed first by a private party under a possibly less conservative judge, judge Ada Brown, who is actually a first African-American appointed by former President Trump and a Native American, kokachaw Nation, indian Indian.

Speaker 1: 17:36

In summary, the average American employee and executive are now free agents once and for all, and I've told employees all the time just negotiate like you, don't have a non-compete, because usually they're not enforced and we know that by practice, and now they're free to choose their own career trajectories. No longer are employees unfairly coerced and encumbered by one-sided non-competition agreements that only only benefit employers and only ever have. I cringe at the billions of dollars unnecessarily spent by employees and executives over the years fighting against employer lawsuits seeking to enforce ridiculous non-compete cases. Of course employers are pissed and I'm glad they're pissed. They had it for so long and for so good so long. Now the rules of the game have changed in favor of employees and a great crack in the wall has opened in the private government castles of American workplaces and employees. They do now matter.

Speaker 1: 18:48

So as a little end note to the discussion, as I usually do, I have been involved in so many non-compete cases over my career, which spans I'm forgetting now 28 years. The harm inflicted by these things are tremendous and if you've ever been rubbed the wrong way by non-compete because you couldn't go work somewhere, you know what I'm talking about. This is an economic hit to the pocketbook like no other. Sometimes high-level executives, even just employees who are paid very well, are saddled with million-dollar handcuffs that they can't leave or they don't want to leave. But they can forfeit that money if they go work for a competitor. So I've had cases where I've gone to trial in these matters, where we have brought up evidence of you know who's paying the mortgage, who's going to pay for the college education and who's even going to pay for, in one case, the diapers for the young child of the individual who's being sued by his former employer for a non-compete issue.

Speaker 1: 19:53

The individual who's being sued by his former employer for a non-compete issue it's ridiculous. I think courts have known this for years. I'm going to say, for one thing, there is an exception. There's always the bad actor, leaver, who goes to work, steals all the trade information and contacts and whatever it was, and went to work. Her competitor and all the clients left, and he or she ought to be sued, and rightfully so, and there are court cases that easily identify those. But that's not the norm. The norm is the magnitude of employees across the country and, worse off, the people who work in restaurants who have no reason to have a non-compete, but they have them. So it's just ridiculous that there's a default management practice to use a non-compete, but they have them. So it's just ridiculous that there's default management practice to use a non-compete all the time in every single person's employment.

Speaker 1: 20:42

I'm not surprised it reached this level that somebody, some agency, finally said enough is enough. And here we have the Federal Trade Commission. So, if you want to know, I'm delightedly pleased. Someone asked me the other night over dinner whether I was happy about this. I am. I probably will have to entertain these types of cases a little bit more in the future, but not having to deal with this nonsense for employees, that's a great thing, and as an attorney who represents them, that's a great thing. They don't have to spend money needlessly to worry about this issue. They don't have to spend money needlessly to worry about this issue. So there will probably be cases where I have to advise people, but not nearly the types of litigation that's happened in the past. So it's a good thing for American workforces.

Speaker 1: 21:24

It's not a political thing. It's not something that is a matter of politics or you have the Biden administration trying to make it so because business are run by Republicans and Democrats alike. So figure that one out, okay. Democrats want non-competes for their employees, so it's not political. It's just this thing that happens in our country, and I think by September 4th of this year it'll go away.

Speaker 1: 21:57

So with that, I spent a lot of time to research this before I got on the podcast with you. I wanted to have a different angle on it. I did go into the chamber case to dump down into the depths of that and look at it. I wanted to bring something more clear to you? I think I have. This is still an ongoing issue. You're going to have developments of this.

Speaker 1: 22:19

You may have the possibility that this case that the chamber filed, they may get an injunction against the FTC. It may rise up to the level of spring court. That was their intention all along. So the you know, september 4th may come around. You may have a limited period of time of free agency, but there may be some shifts politically. We do have a conservative federal court at the Supreme Court level, so that may change. We don't know. So the Supreme Court decisions that are currently under review have to do with federal agency deference. We'll probably provide some indication to how the FTC case will run, but we'll stay tuned. But nonetheless we'll take this advantage. We have it now as of September 4th. Again You're a free agent and let's see how things change for the better for employees nationwide. Hope you enjoyed this one. Talk to you next week, thanks.