FTC Announces Ban on Non-Competes

[o_mlly]

Even assuming you're correct, that doesn't mean that the mere threat of litigation hasn't been sufficient in many cases to obstruct employee movement and have the intended chilling effect.

And comforting to the one whose proprietary info is thereby protected.

Employees under a non-compete can still move but not to a direct competitor. Providing a competitor with info gained solely because of the former employee's intimacy in his prior employer's business is unjust. And no one is forced to sign a non-compete. Only a fool would do so w/o an adequate quid pro quo in his contract.

 

[iluvatar5150]

And comforting to the one whose proprietary info is thereby protected.

And comforting to those who'd wish to keep their payrolls costs low by suppressing wages.

Employees under a non-compete can still move but not to a direct competitor.

"Direct competitor" can be extremely broad. If your skills apply to only one industry (like many do), then that more-or-less prohibits the employee from moving anywhere. My company, for example, doesn't have a non-compete, but we do have policies against moonlighting with competitors, where "competitors" includes everybody in our entire medium (video games), globally. If they'd tried to enforce a non-compete with those definitions, then I'd have to switch mediums to something like film or concert production, which would amount to, essentially, a career change.

Providing a competitor with info gained solely because of the former employee's intimacy in his prior employer's business is unjust.

That's nice, but largely irrelevant for most workers.

And no one is forced to sign a non-compete. Only a fool would do so w/o an adequate quid pro quo in his contract.

Many of those "fools" are merely people looking for work in a market where employers have the upper hand. Not accepting their terms can often mean not working at all.

 

[o_mlly]

And comforting to those who'd wish to keep their payrolls costs low by suppressing wages.

"Direct competitor" can be extremely broad. If your skills apply to only one industry (like many do), then that more-or-less prohibits the employee from moving anywhere. My company, for example, doesn't have a non-compete, but we do have policies against moonlighting with competitors, where "competitors" includes everybody in our entire medium (video games), globally. If they'd tried to enforce a non-compete with those definitions, then I'd have to switch mediums to something like film or concert production, which would amount to, essentially, a career change.

That's nice, but largely irrelevant for most workers.

Many of those "fools" are merely people looking for work in a market where employers have the upper hand. Not accepting their terms can often mean not working at all.

Suppressing wages? No evidence of that.

Moonlighting with competitors? You mean agreeing not to simultaneously work for the company's competitor?

That's nice? You mean justice is nice but irrelevant?

I sense extreme prejudice here.

 

[iluvatar5150]

Suppressing wages? No evidence of that.

...none that I've presented so far in this thread.

The GAO's survey found that it may happen:

Noncompete Agreements: Use is Widespread to Protect Business' Stated Interests, Restricts Job Mobility, and May Affect Wages

Noncompete agreements can restrict workers from seeking employment with a competitor or from starting a competing business. These agreements can help...

www.gao.gov

It's also a rather obvious outcome of workers' lack of mobility: if it's harder to get a new job, it's harder to get a new job with a big raise.

Moonlighting with competitors? You mean agreeing not to simultaneously work for the company's competitor?

yes

That's nice? You mean justice is nice but irrelevant?

No, I mean most workers don't have access to the kind of information that would make those concerns salient.

I sense extreme prejudice here.

oh?

 

[WolfGate]

Nevertheless, the non-competes are still contracts requiring a quid pro quo. In particular, non-competes that I have signed in the past obligated my employer to continue to compensate me for the duration of my non-compete term. I thought that quite fair.

That would be quite fair. I have had non-competes before and seen others from potential employers. I work in engineering and business development for high tech firms. I have never seen, nor do I know anyone who has seen, a non-compete that had the employer compensating during the window of non-competition. You are fortunate. I am glad the rule is changing.

Having written the paragraph above, it made me curious so I searched a bit. I found some interesting information, typical of what I quote below. This is from an article written for businesses who have/want non-competes.

The Top 10 Mistakes with Non-Competition Agreements | MacElree Harvey, Ltd.

Non-Competition Agreements can help a business retain valuable employees, protect its confidential information and customers, and prevent unfair competition. They can also be utterly useless. While having a well-drafted, enforceable Non-Compete can be a source of significant value for many...

www.macelree.com

For a Non-Compete to be enforceable, there must be consideration, which is a legal term for an exchange of value. For Non-Competes obtained from newly hired employees, usually the agreement only needs to state that the employer’s willingness to hire the employee is the value exchanged for the employee’s agreement not to compete. For existing employees, however, additional consideration is required to make an agreement enforceable. When employers obtain Non-Competes with long-standing employees without providing anything of value in return, they are obtaining an unenforceable agreement. In many cases, the business is in a worse predicament than not having a Non-Compete, since it is relying on an agreement that is not legally enforceable. It is vital to provide additional value to an existing employee in exchange for the Non-Compete. This additional consideration could be more money, new job responsibilities and titles, new benefits, or a change from “at-will” to “contract-employee” status. While the additional consideration does not have to be of tremendous value, it must provide a real benefit that the employee was not otherwise entitled to receive.

 

[o_mlly]

That would be quite fair. I have had non-competes before and seen others from potential employers. I work in engineering and business development for high tech firms. I have never seen, nor do I know anyone who has seen, a non-compete that had the employer compensating during the window of non-competition. You are fortunate. I am glad the rule is changing.

Having written the paragraph above, it made me curious so I searched a bit. I found some interesting information, typical of what I quote below. This is from an article written for businesses who have/want non-competes.

The Top 10 Mistakes with Non-Competition Agreements | MacElree Harvey, Ltd.

Non-Competition Agreements can help a business retain valuable employees, protect its confidential information and customers, and prevent unfair competition. They can also be utterly useless. While having a well-drafted, enforceable Non-Compete can be a source of significant value for many...

www.macelree.com

Did your research find this article?

FTC Rule Barring Non-Compete Agreements Likely Will Fail

The FTC has issued a rule banning most employment-related non-compete agreements, which courts will likely strike down as beyond the FTC's authority.

www.forbes.com

The proposed rule also failed to cite FTC staff economist John McAdams, who had demonstrated that there is no research consensus on whether non-competes positively or adversely impact training, wages, information sharing, firm entry, and innovation.​

​

Furthermore, we document work by multiple economists ignored by the FTC indicating that a ban would reduce innovation by reducing human capital investments (training of high-skilled workers) and the necessary R&D.​

​

In addition, the economic costs of a non-compete ban could have negative national security implications, according to a June 2023 Center for Strategic and International Studies paper coauthored by former Undersecretary of Commerce for Intellectual Property Andrei Iancu. This research concludes that non-competes “stem the transfer of valuable IP from U.S. firms to foreign competitors … This strengthens the U.S. innovation system and enhances the United States’ economic growth, global competitiveness, and national security.”​

 

[iluvatar5150]

Did your research find this article?

FTC Rule Barring Non-Compete Agreements Likely Will Fail

The FTC has issued a rule banning most employment-related non-compete agreements, which courts will likely strike down as beyond the FTC's authority.

www.forbes.com

The proposed rule also failed to cite FTC staff economist John McAdams, who had demonstrated that there is no research consensus on whether non-competes positively or adversely impact training, wages, information sharing, firm entry, and innovation.​

​

Furthermore, we document work by multiple economists ignored by the FTC indicating that a ban would reduce innovation by reducing human capital investments (training of high-skilled workers) and the necessary R&D.​

​

In addition, the economic costs of a non-compete ban could have negative national security implications, according to a June 2023 Center for Strategic and International Studies paper coauthored by former Undersecretary of Commerce for Intellectual Property Andrei Iancu. This research concludes that non-competes “stem the transfer of valuable IP from U.S. firms to foreign competitors … This strengthens the U.S. innovation system and enhances the United States’ economic growth, global competitiveness, and national security.”​

That's one guy's opinion on the ruling. It shouldn't be surprising that a senior fellow at a libertarian think tank and former FTC lawyer in the Trump administration would find this sort of rule troublesome.

 

[WolfGate]

Did your research find this article?

FTC Rule Barring Non-Compete Agreements Likely Will Fail

The FTC has issued a rule banning most employment-related non-compete agreements, which courts will likely strike down as beyond the FTC's authority.

www.forbes.com

The proposed rule also failed to cite FTC staff economist John McAdams, who had demonstrated that there is no research consensus on whether non-competes positively or adversely impact training, wages, information sharing, firm entry, and innovation.​

​

Furthermore, we document work by multiple economists ignored by the FTC indicating that a ban would reduce innovation by reducing human capital investments (training of high-skilled workers) and the necessary R&D.​

​

In addition, the economic costs of a non-compete ban could have negative national security implications, according to a June 2023 Center for Strategic and International Studies paper coauthored by former Undersecretary of Commerce for Intellectual Property Andrei Iancu. This research concludes that non-competes “stem the transfer of valuable IP from U.S. firms to foreign competitors … This strengthens the U.S. innovation system and enhances the United States’ economic growth, global competitiveness, and national security.”​

I'm not sure why you might think my search would find an article on what could happen after this ruling, since I was searching for what requirements were for non-competes prior to this ruling.

 

[o_mlly]

That's one guy's opinion on the ruling. It shouldn't be surprising that a senior fellow at a libertarian think tank and former FTC lawyer in the Trump administration would find this sort of rule troublesome.

Gee ... do you think prejudices might be in play at the FTC? And under Biden all other prejudices disappeared?

I'm not sure why you might think my search would find an article on what could happen after this ruling, since I was searching for what requirements were for non-competes prior to this ruling.

You did not explain in your post the limited scope of your search. Limited searches often find just what the searcher is looking for and not much else.

 

[iluvatar5150]

Gee ... do you think prejudices might be in play at the FTC? And under Biden all other prejudices disappeared?

Not at all. But I'm not going to take the predictions of a libertarian as gospel.

 

[o_mlly]

Not at all. But I'm not going to take the predictions of a libertarian as gospel.

Good. I look forward to your follow-up thread on this FTC ruling after the inevitable challenges are litigated.

 

[iluvatar5150]

Good. I look forward to your follow-up thread on this FTC ruling after the inevitable challenges are litigated.

I make no predictions about whether or not this will withstand legal scrutiny, but I've been around the block with libertarians enough to not trust their prognostications.

 

[Pommer]

Good. I look forward to your follow-up thread on this FTC ruling after the inevitable challenges are litigated.

The “let-capitalism-regulate-itself” arguments will be delightful, I’m sure.

 

[WolfGate]

You did not explain in your post the limited scope of your search. Limited searches often find just what the searcher is looking for and not much else.

Apologies then. I though it was clear in context; I guess it was not.

 

[o_mlly]

The “let-capitalism-regulate-itself” arguments will be delightful, I’m sure.

The “let-states-regulate-capitalism”, would be delightful, I'm sure.

 

[Pommer]

The “let-states-regulate-capitalism”, would be delightful, I'm sure.

Commerce clause? Who needs it?

 

[ThatRobGuy]

To me, completely banning them seems like an overcorrection.

On one hand, you have companies that put them in to de-incentivize people from leaving and keep them trapped in sub-par jobs, because if your choices are "stay at this terrible place" or "You can go somewhere else, but you're not allowed to officially start working there until 90 days after you quit"...most cannot go 90 days without a paycheck. That is certainly a problem worth correcting.

On the other hand, you also don't want ABC Corp to get wind of some awesome new product offering that XYZ Inc down the street is doing, and have them lure away an employee with signing bonus so that they can spill the beans.

Or, if ABC Corp and XYZ Inc are both in a race to get their new (similar) product offering to market, and XYZ knows who their opponent's key people on the project are, and dangles a carrot to get those people to jump ship just to hamstring their competition.

Example, pretend that it was the 90's and Steve Jobs and Bill Gates are rushing to get their new OSs to the market. Jobs knows who Bill Gates's best developers are, and lures them to come work for Apple. Not because he actually wants their talents, but simply because he knows that without them, Gates would struggle to meet his release dates and miss the launch.



To me, there's a happy medium. Companies should be allowed to do non-competes, but if they do, they have to pay a severance package that would cover the salary and keep that person on their healthcare plan for the non-compete period.

I suspect if the law was something like that, we'd see companies using them in less of a willy-nilly fashion, and instead only use them where it really makes sense.


It makes perfect sense why Merrill Lynch wouldn't want a Sr. Strategist to go work for another investment firm tomorrow.

It doesn't make sense to tell the guy who unloads trucks at UPS that he can't go work for FedEx.

 

[iluvatar5150]

To me, there's a happy medium. Companies should be allowed to do non-competes, but if they do, they have to pay a severance package that would cover the salary and keep that person on their healthcare plan for the non-compete period.

Your logic makes sense, but can you imagine the wailing and gnashing of teeth that would come from having to pay out an extra 6-24 months of salary continuance for everybody who quit?

 

[ThatRobGuy]

Your logic makes sense, but can you imagine the wailing and gnashing of teeth that would come from having to pay out an extra 6-24 months of salary continuance for everybody who quit?

Apart from executive teams, I haven't really heard of just your "average workers" ever having to sign one that long.

My company has them for some non-executives, but it's usually only 30-90 days and isolated to people who are in a few key positions of intimate company knowledge.

They've largely moved away from them in favor of much more specific (but much longer lasting) NDAs.

I used to be under a general 90-day non-compete. But they nixed that, and it was replaced with an 8-page long NDA that listed the specific things I'm not allowed to disclose or discuss with other companies (in an employment situation or just in general), and gave a very specific list of the companies I'm not allowed to discuss it with.

If leaking of company specific trade secrets is the main concern, NDAs are much more effective for that anyway. If I were going to go spill the beans to one of my company's competitors in exchange for a signing bonus, "it's a contract violation at 90 days, but if it's been 91 days, good to go" seems rather arbitrary.

 

[iluvatar5150]

Apart from executive teams, I haven't really heard of just your "average workers" ever having to sign one that long.

My company has them for some non-executives, but it's usually only 30-90 days and isolated to people who are in a few key positions of intimate company knowledge.

They've largely moved away from them in favor of much more specific (but much longer lasting) NDAs.

I used to be under a general 90-day non-compete. But they nixed that, and it was replaced with an 8-page long NDA that listed the specific things I'm not allowed to disclose or discuss with other companies (in an employment situation or just in general), and gave a very specific list of the companies I'm not allowed to discuss it with.

If leaking of company specific trade secrets is the main concern, NDAs are much more effective for that anyway. If I were going to go spill the beans to one of my company's competitors in exchange for a signing bonus, "it's a contract violation at 90 days, but if it's been 91 days, good to go" seems rather arbitrary.

That's why I don't understand the argument that they're designed to protect trade secrets. I could maybe understand it if you're in an industry where product development is so fast that a few months' delay is going to make insider information irrelevant, but outside of that, what's the point beyond just putting up roadblocks to worker mobility?

My industry has moved away from non-competes, too. I don't think I've ever been subject to one, but NDA's are ubiquitous and, at least IME, short. It's basically, "Everything you see here is proprietary. You can't tell or show anybody anything ever without prior authorization. If you do, we can sue you." And every visitor who walks through the door has to sign one. The only place where this really becomes an issue is with portfolio material from cancelled projects. People will spend several years of their career working on something only to have it canned and have nothing to show for it. I know a bunch of people who worked on a project based on a very well known licensed IP that was cancelled, who can't even mention their work on it when applying to jobs at other studios working on the same IP.