Federal Trade Commission bans non-compete employment agreements

Non-compete clauses are setup to protect the wealthy and their companies. They are trying to keep a monopoly on the industry that they work in. In so doing, they are keeping those that work for them from either leaving and working for a competitor or starting up their own company. Where it gets downright ridiculous is when it is lower wage occupations we are talking about. For example, you are a manger of a Wendy's and they force you to sign a non-compete stating that you can't work in another fast food restaurant. Totally isn't needed or necessary.

There is plenty of muscle behind trade secret misappropriation laws and other intellectual property laws that someone jumping ship from company A to company B in order to share company A's trade secrets isn't going to get very far. I have been involved in a few trade secret misappropriation lawsuits and the non-compete claim ends up being a side show as the trade secret misappropriation claim allows for punitive damages and a breach of contract claim does not.

That leaves some very flimsy justifications for non-competes. One is that some trade secret info ends up being inextricably intertwined with the employee's training and on the job experience. So, the only way to resolve that is to have the employee sit out for a period of time. But then you get into jobs where there really are no trade secrets and the justification for the non-compete is just BS about training, etc.

What non-competes have really been doing is stifling competition in the labor market by keeping employees from being able to entertain competing offers of employment in order to be able to negotiate with their current employer over salary, benefits, etc. Employees won't look for better offers and employers won't try to recruit people who are already employed if there is an issue with a noncompete.

And with the exception of a small number of highly compensated employees, most employees do not have the resources to be able to defend a lawsuit over a non-compete and get their butts kicked in court or end up with six figure attorney's fees bills.

They said they're common for hair salons ? So like barbers can't go to a local competitor. That seems 100% just to supress competition.

My experience has been the opposite. Non-competes are a (tiny) tool for smaller companies and start-ups against large companies. This is especially true in the software industry where the big guys (Microsoft, Google, Oracle, Adobe, etc.) constantly raid smaller companies for their employees and their know-how and IP assets.

But I agree, if the fast food industry is making burger-flippers sign non-competes, it seems unreasonable. And a waste of time. Is that really happening?

Yes there are tons of lower income jobs that employers force non competes onto. Non competes should only be for super high paying jobs. But average jobs where people aren't really getting ahead shouldn't need to sign them. Making the company pay minimum salary of $150k or keep paying salary for 50% of the duration the person has to sit out would be reasonable stipulations. But someone a more normal salary shouldn't be forced into that type of thing.

My question is: under what legal authority does it have to do this? SCOTUS has become increasingly resistant to bureaucrats making such sweeping regulations.

I think it should be less about salary and more about access or the ability to take clients or IP when a person leaves.

I was shocked at the report that 1/5 workers is subject to Non competes. I have seen reports of NDAs for fast food workers and similar.

FTC is the government agency charged with enforcing the nation's anti-competition laws. Section 5 of the FTC act specifically makes "unfair methods of competition in commerce" "unlawful" and empowers the FTC with the jurisdiction to enact regulations to prevent anti-competitive actions in commerce. The legislative and judicial history are actually quite clear that the intent of this provision of the FTC act was to allow the FTC to fill in the gaps for conduct that did not violate the Sherman or the Clayton Acts (generally our anti-trust laws).

This does bump up against J. Roberts "major questions doctrine". But there is a closer nexus between the express language of the FTC act and the non-compete ban than the EPA's interpretation of "air pollution" as including a greenhouse gas when the law was intended to cover emissions that were directly harmful to human health.

The IP assets are already protected by existing law. And what you are describing is text book anti-competitive behavior in the labor market. Smaller firms do not want to compete with larger firms for talent so they get employees to sign noncompetes to prevent them from getting a higher wage at a big firm once they prove their value at the smaller firm. The smaller firms do have a way to fight this. It is called properly compensating their employees which is what is required in a capitalist labor market.

Yeah, there's interest on either side of the equation. But, as you know, small companies often can't afford to pay the compensation that Microsoft, for example, can. Which is precisely why Microsoft has a program of identify small competitors they think are a technology threat and grabbing up their employees with compensation packages that small companies could never afford.

There are many laws that protect IP, but they are VERY difficult to enforce. If your employee steals your trade secrets and runs off to a competitor and starts using them, it's extremely difficult to enforce trade secret laws because . . . trade secrets are secret. You "know" the employee took them and is using them, but there is no way to prove it, or even make the allegation of theft. Very difficult. That's why non-competes are important as prophylactic - stop the theft before it happens. And non-competes always have limits. I don't know any state that allows them for longer than 2 years, most states limit them to 1 year, and all states put other limits on them, like "direct competitors" and other limits on scope. I think you're going to find the people happy about this are big $$$$$$$ business, and the ones upset about it are small companies and start-ups.

This does not acknowledge that when a professional service company takes on a new employee, typically they are a money suck for the first year or more as they are trained up. A company invests advertising and resources into getting customers for that individual (they don’t do it themselves). What this will do will discourage professional industries (law firms, medical providers, engineering firms, etc.) from taking on associates if they can rip away customers that a business invests money in developing. Just another example of those who never operated a business making laws for those who have.

Can't they structure the employee's salary/bonuses/stock options/benefits/company day care/student loan reimbursement so that they'll want to stay a while? Don't they already do this to some extent?

In most jurisdictions, the lawyer's code of professional conduct prohibits lawyers from entering into noncompete agreements that in any way restrict the ability of an attorney to practice law after the termination of the employment agreement. So, the FTC's rule is by and large already in effect in the legal industry. And we are doing just fine. Big law firms put out lots of money to get top law school grads and partners spend a lot of time with young associates helping them learn the profession. But about 1 in 10 associates, on average, will still be at the same firm after 7 years and promoted to partner. Most will move to another firm or start their own firm or go in house. And the big firms are making lots and lots of money.

My firm is about 20 lawyers. We go through associates like Leonardo DiCaprio goes through girlfriends (except they are much older, not at all good looking and there is no sex). I have been here for 18 years and my group has not lost a single one of our clients to an attorney who left the firm.

So, the legal profession is thriving without noncompetes. There is no reason why other industries would need them if the legal industry is doing just fine without them.

And as far as the engineering firm example, entry-level Engineers-in-Training aren't taking any clients with them. And if non-competes were standard in that industry, no one would ever be able to strike out on there own once they got licensed. You'd have to work some low wage job for a year, then somehow start out with no capital and no clients. Guess what, small businesses sometimes stagnate, the principals get old and complacent - you need new competition to replace them.

As for medical providers, my state bans non-competes and I don't see all our family's doctors and dentists hopping around. In fact they seem to rarely leave their practices. But suppose someone needed to move an hour away in-state for family reasons, or their workplace became a toxic environment - maybe a co-worker cheated with their spouse or something. Now they can't practice medicine for a year or two if they want to leave?

So many wannabe lawyers opining in this thread yet only one person, albeit incorrectly, stated an 'NDA.'

A non-compete is entirely different than a non-disclosure, which remains legal and enforceable. A non-compete has NOTHING to do with trade secrets or intellectual property.

And any day now there's likely to be a thread asking for medical advice to which these same wannabe lawyers will then turn in their JDs for MDs and start giving medical advice.

LetsRun.com 😂😂😂 Gotta love it.

You appear to have misread the posts in this thread that you are complaining about. Or maybe you didn't understand them.

I loved giving my 2 weeks, & not disclosing my next employer. Then they had me leave that day AND paid the last 2 weeks.

Roughly 1 in 5 Americans work under a non-compete. For many it’s buried in their contract and not made explicit. For others it’s beyond their comprehension. But it’s absolutely happening at all levels of the economy.