Sept. 4 is the date set by the Federal Trade Commission for the implementation of its new rule against anti-competitive contract agreements.
But with an unsure legal footing with multiple pending lawsuits, and a weak 3-2 vote on the measure by the commission board, is it really going to happen? And what should employers be doing about it?
“If you have such agreements I wouldn’t drop them right now,” said David Steckel, an employment and labor attorney with Fitzpatrick Lentz & Bubba. “But do have a contingency plan.”
“The ban would make it an unfair trade practice for companies to tie employees down with a non-compete clause,” said Jacob Sitman, chair of employment law and labor relations at Fitzpatrick Lentz at Bubba. “And it does impact all existing non-compete clauses.”
He said whether or not the rule becomes law remains to be seen, but either way it’s important for employers to make sure employee contracts cover things that are necessary to protect business interests including such topics as anti-solicitation clauses and the protection of confidential information and trade secrets.
Steckel and Sitman were the panelists of an LVB.com webinar sponsored by the law firm on the implications of the impending rule.
“There has been a growing public sentiment in favor of banning non-compete clauses,” Steckel said.
But, at the same time, Sitman said the corporate world is up in arms against the proposed ban, saying it keeps business owners from protecting their legitimate interests.
In fact, within days of the FTC issuing the ruling, the U.S. Chamber of Commerce filed suit against the rule, just one of many such lawsuits that would come.
At the same time, however, the attorneys noted that the overwhelming majority of reactions to the rule were in favor of it.
Of the more than 26,000 comments submitted to the FTC during the comment period around 25,000 were speaking in favor of it mostly from employees who had been impacted negatively by what they considered to be an unfair non-compete contract.
But the lawsuits may have sway in whether or not the rule is implemented.
Sitman noted that even on the commission the matter is contentious.
One of the dissenting votes in the 3-2 ruling even laid out the groundwork for what the legal arguments against the rule could be.
While both attorneys said they mostly oppose the rule because of its flawed legal language, they also agreed there are two sides to the issue.
First, Sitman said employees especially lower-level ones should have protection against an employer harming their future career prospects with unreasonable restrictions.
He said it was unfair contracts, including non-compete clauses of up to 10 years, that first drew the FTC to consider the matter.
“We need to protect the income of workers who may have been tied down by an unreasonable non-compete,” Sitman said.
But Steckel added that there are also legitimate business concerns that an employer has the right to protect, which is why he feels the complete ban on virtually all kinds of non-compete clauses across most industries is the wrong move.
He said employers have the right to protect trade secrets, confidential information and relationships with clients and other employees, and while there are other ways to protect such interests with separate language in contracts, it doesn’t have the legal power that the non-compete clause does.
The best way for employers to deal with the uncertainty of the proposed ban is to be prepared.
Sitman said it’s important for companies to be knowledgeable about which employees are covered by non-compete agreements, which would be voided if the rule does stick.
An employer would be required to let the employee know that the clause is no longer valid.
But, if the rule doesn’t get implemented on Sept. 4 because of the rule challenges, such action might not be necessary.
Still, Sitman said, it’s important for any employer to keep abreast of the possibly evolving rule.
“It impacts almost every employer,” he said.
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