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FTC Bans most Non Compete Clauses


Firemans4Horn

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Posted (edited)

 

If people can just go and work for whomever will pay them more or treat them better, then all companies would be forced to also offer better pay or better conditions.

This would result in a viscous cycle that would cause a huge redistribution of $ and wealth from the haves to the have nots.

These communist market efficiencies like this have no place in capitalism 

 

edited bc little people already get the short end of the stick.

@BehoId, The Underminer!- respect

Edited by Dnaguy
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This is going to get held up in court for years and employers and are going to do what they what they are already do in California - make the non solicit and confidentiality provisions in the employment contract operate suspiciously like a non compete and dare the employees to sue. 

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4 hours ago, Keef said:

This is going to get held up in court for years and employers and are going to do what they what they are already do in California - make the non solicit and confidentiality provisions in the employment contract operate suspiciously like a non compete and dare the employees to sue. 

I’m pretty sure the employers are going to have to sue to enforce. Default interpretation will favor the employees. Nonsolicitation is valid concern but super easy to get around, and not many companies truly have trade secrets that the new employer is going to care about (and if they do that’s valid as well)

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Just now, Sawbonz said:

I’m pretty sure the employers are going to have to sue to enforce. Default interpretation will favor the employees. Nonsolicitation is valid concern but super easy to get around, and not many companies truly have trade secrets that the new employer is going to care about (and if they do that’s valid as well)

It's still a practical problem.  Every competently drafted offer letter in the world has language where you're required to disclose any restrictive covenants that you're subject to.  Once disclosed, you have to convince your new employer that whatever restrictive covenants you have in place aren't enforceable and the old company won't sue you and them in order to try and enforce it.

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Just now, Keef said:

It's still a practical problem.  Every competently drafted offer letter in the world has language where you're required to disclose any restrictive covenants that you're subject to.  Once disclosed, you have to convince your new employer that whatever restrictive covenants you have in place aren't enforceable and the old company won't sue you and them in order to try and enforce it.

All I know about is medical field sales and marketing; literally none of the companies give a shit. If they want a rep they hire the rep and park them somewhere for 6,9, or 12 months. With this I imagine they will have them start immediately and dare the old company to sue.
 

I guess we will see but I really doubt you are going to see a slew of lawsuits related to bullshit IP allegations, and Client lists are a known risk (it’s usually the major reason for “poaching” the employee and workarounds are already in place)

 

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1 hour ago, Sawbonz said:

All I know about is medical field sales and marketing; literally none of the companies give a shit. If they want a rep they hire the rep and park them somewhere for 6,9, or 12 months. With this I imagine they will have them start immediately and dare the old company to sue.
 

I guess we will see but I really doubt you are going to see a slew of lawsuits related to bullshit IP allegations, and Client lists are a known risk (it’s usually the major reason for “poaching” the employee and workarounds are already in place)

 

Yeah, we work in different industries.  For tech companies and most PE back companies, they care about this a ton.

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5 minutes ago, Keef said:

Yeah, we work in different industries.  For tech companies and most PE back companies, they care about this a ton.

Yep. I can’t consult and be staffed on any projects for a F100 organization with a new company, until 2025, because of a non-compete. I wonder if this is now retroactively trashed or if this only for moving forward.

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Posted (edited)

I think non-solicitation clauses should be enforceable, obviously confidentiality and trade secret clauses too but straight up non-competes are bullshit - though high level executives it’s justifiable but those deals almost always come with a $1 for $1 severance package for the length of the non-compete. Looks like exec non-competes are still enforceable. 

Edited by troph
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Texas SOP on this to now has been to pair it with trade secrets. It has to be “ancillary to otherwise enforceable agreement.“ You signed your agreement when you first employed agreeing that you’re going to be exposed to confidential and proprietary information. In exchange for them letting you in on their secrets you promise not to compete with them for 6+ months upon leaving. This is done in the guise of protecting those secrets. The truth is, it’s just an ordinary noncompete and the sort of secrets that they’re giving you are frequently the most ordinary of business practices. Maybe their pricing list, their suppliers, whatever. It’s all just bullshit to minimize competition. 

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Posted (edited)
12 minutes ago, BeardIP said:

Yep. I can’t consult and be staffed on any projects for a F100 organization with a new company, until 2025, because of a non-compete. I wonder if this is now retroactively trashed or if this only for moving forward.

That sounds super-unenforceable.

I think that's the real problem here:  upward of 90% of covenants not to compete are unenforceable under applicable state law.  But the cost of defending an enforcement suit is such that it is overall a considerable burden on the parties concerned.

One way to look at it is that employers will no longer be able to burden their former employees and competitors with the costs of defense of a likely unenforceable covenant.  Rather than banning the enforcement of legitimate rights.

Edited by TwiceHorn
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8 minutes ago, troph said:

I think non-solicitation clauses should be enforceable, obviously confidentiality and trade secret clauses too but straight up non-competes are bullshit - though high level executives it’s justifiable but those deals almost always come with a $1 for $1 severance package for the length of the non-compete. Looks like exec non-competes are still enforceable. 

Right, but if you can't solicit customers (often defined to include prospective or even likely customers), employees, or consultants, and you are prohibited from using confidential information you learned in your old job in any way (with confidential information typically being defined broad enough to encompass anything under the sun), how is that practically speaking different than a non-compete?  And sure, maybe some portion isn't enforceable, but do you really want a lawsuit with your former employer on your record if you're an executive?  Plus, a lot of companies - especially PE backed ones - have language in their equity award agreements that if you violate any restrictive covenants post-termination, they can clawback their equity and sometimes even past proceeds.  Many states permit the equity clawback under the argument that isn't prohibiting you from competing - it is merely taking back some contingent compensation you were paid in the past.  See how this gets murky quickly?

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Posted (edited)

Well I’m not supportive of non-compete clauses that masquerade as non-solicitation clauses. As most well written contracts state, headings are meaningless. If it’s a non compete it’s non compete regardless of what it’s called. 
 

this development will put continued pressure on non-solicitation clauses and they should be focused on customers and clients the employee interacted with in the last say 12 months, and those prospective clients that the employee was actively involved with pursuing at the time they left.

a non-solicitation clause has to leave room for the employee to legitimately work for a competitor in the same position.

i haven’t read the details here to know if and how true non solicitation clauses will be impacted. I’m actually on a planning call with an exec and a future employer this week on how to circumvent his non compete and then this happened. My go to non compete litigator will be well versed and spoon feed me I’m sure.

Edited by troph
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22 minutes ago, BeardIP said:

Yep. I can’t consult and be staffed on any projects for a F100 organization with a new company, until 2025, because of a non-compete. I wonder if this is now retroactively trashed or if this only for moving forward.

it is retroactive except if you're in senior management. 

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12 minutes ago, Goredho said:

Not that I disagree with what's happening, but of the people I've seen defy their non compete, I have yet to see the previous company try to enforce it.

Wrapped up litigating one within the last 6 months or so.  It’s a very personality-specific thing.  Employer felt sort of like dad and needed to teach the kid that rules are rules. 

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3 minutes ago, BehoId, The Underminer! said:

Wrapped up litigating one within the last 6 months or so.  It’s a very personality-specific thing.  Employer felt sort of like dad and needed to teach the kid that rules are rules. 

Yeah, the employers I've encountered seem to view it more as a deterrence vs anything they will actually enforce.  Its tech, so maybe thats part of it, too.  I've always kind of assumed it was so they would not develop a reputation as corporate fascists in what has at least until recently been a very competitive marketplace for talent.  You might or might not stop one employee from going to a competitor through the courts, but you are for sure going to have difficulty overcoming that reputation in trying to entice top notch talent to your company in the future.

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I was going to ask if anyone had seen a non-compete vigorously enforced.  I have seen/heard bluster and sternly worded notes but not seen full blown litigation.  Although I am sure it happens, it doesn't seem really common.  Broadly, I think NC for Fortune 500 companies are a joke.  As with most rules and regulations its small to mid-cap companies that will be hurt the most.

 

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Non-compete lawyers aren’t a fiction, it happens. many of those cases will continue under breach of confidentiality and misappropriation of trade secret clauses. 

Just now, Incredulity said:

I was going to ask if anyone had seen a non-compete vigorously enforced.  I have seen/heard bluster and sternly worded notes but not seen full blown litigation.  Although I am sure it happens, it doesn't seem really common.  Broadly, I think NC for Fortune 500 companies are a joke.  As with most rules and regulations its small to mid-cap companies that will be hurt the most.

 

Yes many, many times. 

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7 minutes ago, Incredulity said:

I was going to ask if anyone had seen a non-compete vigorously enforced.  I have seen/heard bluster and sternly worded notes but not seen full blown litigation.  Although I am sure it happens, it doesn't seem really common.  Broadly, I think NC for Fortune 500 companies are a joke.  As with most rules and regulations its small to mid-cap companies that will be hurt the most.

 

 

7 minutes ago, troph said:

Non-compete lawyers aren’t a fiction, it happens. many of those cases will continue under breach of confidentiality and misappropriation of trade secret clauses. 

Yes many, many times. 

Yeah, it happens pretty often. Now, those are still a very small percentage of the non-competes/non-solicitation clauses that are technically breached, but the threat of it isn't something that should be ignored. 

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7 hours ago, Keef said:

This is going to get held up in court for years and employers and are going to do what they what they are already do in California - make the non solicit and confidentiality provisions in the employment contract operate suspiciously like a non compete and dare the employees to sue. 

Well, from a defense employment lawyers perspective, we should limit non-competes, if at all, to the top tier executives and the guys who are given the recipe for coca-cola. 

But more importantly, it will cause companies to tighten the those non-solicits and confidentiality clauses.  Which will give some more clarity to employees but may ironically give employers more opportunity to harass lower level ones.  Right now it feels like the only non-competes we are willing to enforce are just slam dunk unfair competition/espionage.

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19 minutes ago, troph said:

Non-compete lawyers aren’t a fiction, it happens. many of those cases will continue under breach of confidentiality and misappropriation of trade secret clauses. 

Yes many, many times. 

 Yeah, probably a dumb question to a board filled with lawyers.  LOL.

 

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4 minutes ago, The Original Greaser Bob said:

Well, from a defense employment lawyers perspective, we should limit non-competes, if at all, to the top tier executives and the guys who are given the recipe for coca-cola. 

But more importantly, it will cause companies to tighten the those non-solicits and confidentiality clauses.  Which will give some more clarity to employees but may ironically give employers more opportunity to harass lower level ones.  Right now it feels like the only non-competes we are willing to enforce are just slam dunk unfair competition/espionage.

As you probably know better than I do, often the strategy to intentionally breach a non-compete is to isolate the breach to just that and be really noisy and create a pristine record of complying with the confidentially, return of property, and non-solicitation clauses. There are plenty of judges who will see that rigorous compliance and simply not rule in favor of the employer seeking to enforce. It’s a way to mitigate the risk of a lawsuit. 
 

the juicy ones almost always have trade secret claims which is why this litigation won’t really go away. 

1 minute ago, Incredulity said:

 Yeah, probably a dumb question to a board filled with lawyers.  LOL.

 

Well as others have said, it’s a small fraction of the total non competes out there. 

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39 minutes ago, BehoId, The Underminer! said:

Wrapped up litigating one within the last 6 months or so.  It’s a very personality-specific thing.  Employer felt sort of like dad and needed to teach the kid that rules are rules. 

It's costly for the employer as well as the employee and competitor/employer (if they get sued as well or foot the employee's bill).  Presumably, the employers are better able to bear that burden, but not always.

And yeah, spite and vengefulness seem to play a large role in these deals.  Or at least the notion that the departing employee should be terrorized as a warning for others.

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Posted (edited)

When our SVP Engineering left to go to a “competitor”, he was told that he couldn’t officially recommend/endorse any candidate’s application that worked at our company when applying to the new company for 1 year or it’d be considered a violation. Both companies are in healthcare space but do wildly different things. Sounds like it was to prevent poaching talent

Edited by StassneyHorn
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8 hours ago, Keef said:

This is going to get held up in court for years and employers and are going to do what they what they are already do in California - make the non solicit and confidentiality provisions in the employment contract operate suspiciously like a non compete and dare the employees to sue. 

CA recently passed more clear legislation that basically says any employee based non-solicit (employee or customer) is illegal.   There are some exceptions.  

In Ca we really only see non-competes in the company sale context where dudes get FU money.  Some buyers get more aggressive but I’d be hesitant to defend in a CA court.  That’s where this is going to go, I think  

Honestly, I welcome this. It makes  life much easier as companies grow into new states or in the new distributed market place.  

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Of course Brint Ryan is first up to sue the ftc over the ruling. He has a tax consulting giant that has swallowed up most of his competition via PE funded buy outs with the rumor of rolling it all into going public. Hundreds of millions spent buying competitors, a shit ton of which goes up in smoke if the property tax system in Tx goes away/significantly changes. Dude is feeling the heat from all sides now, and the wolves are knocking on his door.
 

oh, he’s a prick in general, just to be clear.  

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One thing it does do that's actually maybe nice for the lawdog is this.  Under Texas law, at least, a covenant must be confined to a reasonable geographic area, which usually means the cities, or county, or region where the employee actually worked.  And that almost always means a less-than-statewide, much less nationwide, territory.

For most major corporations, that is entirely unsatisfactory.  They think if a former employee can damage them, it can be from anywhere, at least in the US.  And that is at least theoretically true.

So, whoever is tasked with drafting such a covenant is often forced into drafting one with an overbroad territory to satisfy management, with everyone knowing that it's likely unenforceable.  And that just doesn't feel good if it isn't unethical.

So, maybe this will take most of that off the table.

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3 minutes ago, bluto said:

Of course Brint Ryan is first up to sue the ftc over the ruling. He has a tax consulting giant that has swallowed up most of his competition via PE funded buy outs with the rumor of rolling it all into going public. Hundreds of millions spent buying competitors, a shit ton of which goes up in smoke if the property tax system in Tx goes away/significantly changes. Dude is feeling the heat from all sides now, and the wolves are knocking on his door.
 

oh, he’s a prick in general, just to be clear.  

Yeah, I've gotten bad vibes off of them for quite some time.  They were actually a client of a colleague of mine for just this type of shit.

Guy built a helluva business in a short time.  Makes you wonder what's up.

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37 minutes ago, TwiceHorn said:

One thing it does do that's actually maybe nice for the lawdog is this.  Under Texas law, at least, a covenant must be confined to a reasonable geographic area, which usually means the cities, or county, or region where the employee actually worked.  And that almost always means a less-than-statewide, much less nationwide, territory.

For most major corporations, that is entirely unsatisfactory.  They think if a former employee can damage them, it can be from anywhere, at least in the US.  And that is at least theoretically true.

So, whoever is tasked with drafting such a covenant is often forced into drafting one with an overbroad territory to satisfy management, with everyone knowing that it's likely unenforceable.  And that just doesn't feel good if it isn't unethical.

So, maybe this will take most of that off the table.

iirc some of the Delaware chancellors have started refusing to blue pencil unenforceably broad noncompetes drafted by sophisticated counsel, on grounds that courts shouldn’t be cleaning up messes created by lawyers who know better.

 

geographic restrictions get weird when remote work is factored in. 

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1 hour ago, TwiceHorn said:

Yeah, I've gotten bad vibes off of them for quite some time.  They were actually a client of a colleague of mine for just this type of shit.

Guy built a helluva business in a short time.  Makes you wonder what's up.

They take a lot of bullshit aggressive positions as a firm and try and wear down the tax authority with their BS. Within the tax community, their reputation is fairly poor and they have significantly biased tax authorities against most taxpayers trying to settle legitimate disagreements fairly.

Its amazing how big a business one can build on sales/use/property taxes across this country.

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Posted (edited)

My legislation would require a non-compete to include a severance package that covers the time until it expires since the employer is blocking your right to work.  Either let me work elsewhere or pay me not to work. Your choice.

Edited by CooterBrown
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Posted (edited)
8 minutes ago, CooterBrown said:

My legislation would require a non-compete to include a severance package that covers the time until it expires since the employer is blocking your right to work.  Either let me work elsewhere or pay me not to work. Your choice.

top level execs that's exactly what they get. everyone else, not so much. I can support your approach for everyone as well.

Edited by troph
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1 hour ago, hornmpa96 said:

They take a lot of bullshit aggressive positions as a firm and try and wear down the tax authority with their BS. Within the tax community, their reputation is fairly poor and they have significantly biased tax authorities against most taxpayers trying to settle legitimate disagreements fairly.

Its amazing how big a business one can build on sales/use/property taxes across this country.

They have gotten very aggressive in growing their legal branch in recent yrs, almost any/every ‘eligible’ atty I know in my field has gotten a call/offer from them. In my industry at least they’re a mile wide and inch deep but they’re also the 800lb gorilla easily. He needs to ipo before the thing collapses in on itself. 

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2 minutes ago, CooterBrown said:

My legislation would require a non-compete to include a severance package that covers the time until it expires since the employer is blocking your right to work.  Either let me work elsewhere or pay me not to work. Your choice.

Paying money to extend a non-compete is actually illegal in Texas. The scope of the noncompete has to align with the business interest to be protected, so varying scope that based on the size of the payment gives lie to the interest to be protected and makes the non-compete a naked restraint on trade.

 

Of course, every contract is a restraint on trade in a sense. 

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