Clawing my attention span back from the void

Earlier today I attended a talk on the upcoming FTC non-compete clause ban at my local hackerspace, given by a Mike Disotell. Being that I found it insightful, I thought I'd give a summary of my notes, for anyone who's interested.

It should be obvious, but this isn't legal advice yadda yadda.

Non-competes

Non-compete clauses are legally defined as something that prohibits, penalizes, or functionally prevents a former employee from getting a new job or starting a business.

The earliest recorded example comes out of The Dyer Case, 1414, in England. A baker's apprentice was set into one for 6 months. When the apprentice went to open a bakery in town before the 6 months was up, the master sued, but ultimately missed the hearing. The judge said, with regards to the master, "By God, if the plaintiff was here, he'd be sent to prison and made to pay the King a fine."

The modern precedent was mostly set in Mitchel v. Reynolds, 1721.

Existing Bans

Internationally, they're banned in a number of jurisdictions, while some others require some form of compensation, e.g. 50% of your salary for the duration of the non-compete in Germany. In the states, they're banned in California, Minnesota, North Dakota, and Oklahoma, while some other states limit them by the potential for threat, i.e. a 17 year old intern wont be leaving with your trade secrets probably.

The Federal Level

The DOJ's main concern in this is antitrust-related. Non-compete clauses are very similar to no-poach agreements, where, for example, Google might agree not to hire any former Microsoft employees, and vice versa.

The National Labor Relations Board General Counsel has said that non-competes violate sections 7 and 8(a)(1) of the National Labor Relations Act, as they limit employee freedom to quit, and undermine employee bargaining power. There is an exception here for independent contractors.

The FTC

The FTC initially proposed its non-compete ban in 2023, and Final Rule won in a 3-2 vote on April 23rd, 2024. It will go into effect on September 4th, 2024. The FTC expects an increase of 17-29,000 more patents filed annually, and a 2.7% increase in startups created annually, after it goes into effect. The ultimate goal here is promoting innovation.

The ban itself forbids entering work contracts with non-competes after the cutoff date, and enforcing existing ones, however, if a non-compete contract is violated prior to Sept. 4, "damages" from before the cutoff may still be sued for. The ban has exceptions for "senior executives", defined as anyone who makes more than $151,164 annually, and has some form of policy power in the organization. It is not clear if that number will be increased with time. There are also exceptions for certain financial institutions, such as credit unions, and the speaker mentioned these were likely due to lobbying. Fixed term agreements also have an exception, and companies may exploit this in the future by changing the terms of their contracts to fit that definition, allowing non-competes. There are also exceptions for so-called "garden leave" or "rest and vest" contracts, where one is still paid their salary, or other sum of money, as though they were working, despite ostensibly being laid off.

By the September 4th cutoff, employers must give notice to all current and former employees who signed still-active non-competes, that their non-compete no longer applies. The FTC does provide language for this, and explicitly specifies that this may be done via, for example, a company-wide mass email.

Any illegal enforcement of non-competes after the cutoff should be reported to the FTC's Board of Competition.

Pushback

Currently the state of Texas (shocker) and Pennsylvania (hooray!! that's me!!!!! AAAAAAAAAAAAAA) are litigating the Final Rule. Their primary argument is that, because the Rule would apply retroactively to existing contracts, it goes beyond the authority of the FTC. Much of this is copied from the arguments made by the 2 dissenting votes in the FTC. There are other courts whose litigation is on pause, and it is likely that all existing pushback will be merged into one federal case down the line, if it goes that far. The Texas judge has promised a verdict by July 3rd.

That being said, the speaker did not think it was likely the FTC would lose this.

Other Stuff

The Final Rule does not ban NDAs.

"Trade Secrets" are covered generally by state law, and are still protected. It is still illegal to give your new employer access to customer records from your old one, or something like that.

"No-poaching" agreements are still iffy, but not banned outright.

If a less favorable administration gets into office, this FTC rule could be removed.

What to do

Employees should carefully review their employment contracts to see if this ban will affect the terms, and expect a memo of some sort from their employer notifying them of the non-compete's deactivation. If they do not receive it, that should be reported to the FTC.

Employers should, of course, take the steps to notify affected employees, and look into ways of stronger employee retention. It is still illegal to share trade secrets, but you should ensure that what you don't want to get out meets the legal definition of a trade secret. Some jurisdictions, for example, require actual physical protections on them, such as passwords.

That all being said...

...this is a huge win for workers! Software devs especially!! Good shit The Federal Trade Commission!

Anyways, I hope that was in some way insightful and helpful. It was a really informative talk and I've gotten most of the key info here. Toodles!