By Mark Carey
In an anticipated and crushing blow to all employers nationwide, the Federal Trade Commission (FTC) on January 5, 2023 issued a proposed rule that would forever ban noncompetition agreements in employment for an estimated 160 million working Americans. Employees have suffered needlessly for far too long under these oppressive and one sided employment agreements that benefit only employers. I have spent my entire legal career voiding these default employer agreements, and on behalf of all employees Hasta La Vista Baby. But employees and executives will need to be patient, as lobbyists and pro employer groups will mount an extensive legal campaign to overturn the proposed rule and you should expect this fight to go all the way to the U.S. Supreme Court. This battle is about corporate profit and greed, nothing more and nothing less.
Employees Can Speak Out
Employees can weigh in too and cast their ballots in favor of the proposed rule. The FTC has opened public comment on the proposed rule for 60 days and I encourage all employees and executives to send in their stories about how their noncompete agreements ruined their employment prospects and wages.
What Is a Noncompete Agreement?
According to the FTC, an estimated 30 million employees are currently bound by a noncompetition agreement. “[A] non-compete clause is a contractual term between an employer and a worker that blocks the worker from working for a competing employer or starting a competing business, typically within a certain geographic area and period of time after the worker’s employment ends.” The FTC’s rationale offered in support of this gargantuan leap forward for the rights of American employees is, “non-compete clauses prevent workers from leaving jobs and decrease competition for workers, they lower wages for both workers who are subject to them as well as workers who are not.” The FTC estimates a ban on noncompete agreements would raise employee wages to $250 billion to $296 billion per year, while concurrently stimulating the current economy and provide increased tax revenue for the U.S. Treasury. I estimate that employees and employers would save more than $1 billion annually on legal fees fighting against and for enforcement of noncompetition agreements in court. This number was premised on the membership of the 4000 National Employment Lawyers Association (NELA.org)(which I am a member) and each one handling five noncompete cases a year, a very conservative estimate.
Employees Never Had a Chance to Negotiate
Who in their right mind would oppose this proposed rule to ban noncompete agreements? Employers nationwide, both small and large. However, no fare minded employee or executive will stare you in the eye and convince you that this new proposed ban on noncompetes is wrong for them individually and wrong for the country. I say this because I represent both employees and executives. I have never had a client state the noncompete agreement was something they asked for nor something they ever wanted. A noncompete in its essence seeks to deny employment income to employees, and in the executive situation force a forfeiture of incentive compensation she has rightly and honestly earned through her tenure of service to the company.
The Proposed Rule
The proposed rule defines unfair competition as follows:
(a) It is an unfair method of competition for an employer to enter into or attempt to enter into a non-compete clause with a worker; maintain with a worker a non-compete clause; or represent to a worker that the worker is subject to a non-compete clause where the employer has no good faith basis to believe that the worker is subject to an enforceable non-compete clause.”
Any existing noncompete agreements will be voided as of the date of the effective date of the proposed rule and employers must notify existing and previous employees within 45 days that the noncompete agreement is no longer in effect.
Which Employees Does the Rule Apply To?
The proposed rule would apply to a wide range of classes of employees, including employees, independent contractors, externs, interns, volunteers, apprentice and sole proprietor, except the rule does not apply to a franchisee in the context of a franchisee-franchisor relationship but not including workers who work for franchisor.
Noncompetes Are Created by Employers for Employers
Noncompete agreements are created by employers for employers. Employees never have a “real” chance to negotiate these agreements. We have written extensively about this topic, Read Here. Noncompetition agreements serve no valid or reasonable purpose to protect the interests of employees, only employers. Noncompete agreements are an overreach by employers, whose interests are already protected by Confidentiality and Proprietary Information Agreements. Read More Here. Employers say it further protects their competitive advantages, trade secrets and other corporate proprietary information. That is a lie, told repeatedly by the pro-employer lobby groups and the defense bar that support them. Employees are now restricted from gainful employment more than any time in this country’s work history to their financial detriment.
How Did This Issue Become So Bad?
How did employers cause this calamity? The facts are simple to understand. No one noticed the widespread use of this default employment practice covering 30 million employees according to the FTC. No one noticed the financial costs to employees, until today. Employees are not organized and politicians sought only to align themselves with the business lobby such as the Chamber of Commerce or SHRM. It is exactly this decentralized and unorganized nature of nonunionized employees, roughly a 160 million strong, that employers across the spectrum abuse and mistreat employees and executives with noncompete agreements. How certain am I of this fact, because I watch the endless flow of noncompete cases come through our offices. In every case we have litigated, the employee never negotiated the noncompete agreement, had no say in the matter, was told to sign it or lose the job opportunity after they were already hired etc. These default employment practices have to stop, they are abusive and restrict trade in the U.S. economy. This is not a political issue and neither party can claim it as a weapon. Companies, large and small, run or owned by members from both political parties use noncompete agreements. Employers who force noncompete agreements on employees derive the same financial benefit, i.e., profits and competitive control of the labor market, at an enormous expense to individual employees.
The Beginning of the End
The FTC’s proposed ban on noncompete agreements marks the beginning of the end of abusive management practices that has enveloped the nation’s workforce since the founding of this country. Yes, that is how long employers have used noncompete agreements. Other onerous default management practices such as forced arbitration (now prohibited in sex discrimination cases), forced confidentiality of settlements, lack of employee privacy, lack of freedom of speech at work in the private sector and the ubiquitous employment-at-will rule, all strip employees of basic civil rights and negotiation power, and in some instances promote discrimination. Employees are indispensable to the operations and profitability of all companies. Employers dehumanize employees down to their human capital quotient for capitalism purposes. We should all be mindful not to break the collective backs of our nation’s workforce and recognize them for what they really mean to our economy as a whole. We need to bring more fairness and transparency to the workplace.
If you would like more information about this topic or employment law and noncompetition agreements, please contact our employment attorneys at Carey & Associates, P.C. at 475-242-8317. Thank you and be well.