FTC Bans Most Noncompetes - But Don't Get Too Excited

The long-awaited rule from the Federal Trade Commission regarding noncompetes was released yesterday, and it's a doozy. The FTC "has determined that it is an unfair method of competition, and therefore a violation of Section 5 of the FTC Act, for employers to enter into noncompetes with workers and to enforce certain noncompetes."

You can safely assume there will be lots of litigation over this new rule. And I wouldn't hold my breath that the Supreme Court in its current makeup will uphold it. Meanwhile, until a court says otherwise, the rule is in place. What does it mean?

Effective date: The rule isn't effective until 120 days after publication in the Federal Register, so presumably that will be from yesterday. That means the rule will be in effect on August 21, 2024.

Existing noncompetes: Most of them are now deemed illegal and unenforceable, except those involving "senior executives," defined as those earning more than $151,164 who are in a “policy-making position”. But most noncompetes are illegal anyhow, with or without the rule, in my opinion. There are many defenses to noncompetes that exist even if this rule is tossed, and that can help people who are waiting for the effective date.

Future noncompetes: Most will be illegal except those for business purchases.

Noncompete clause defined: "Non-compete clause means: (1) A term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from:  (i) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (ii) operating a business in the United States after the conclusion of the employment that includes the term or condition.  (2) For the purposes of this part 910, term or condition of employment includes, but is not limited to, a contractual term or workplace policy, whether written or oral." 

Nonsolicitation agreements: These are provisions saying you can't solicit employees or clients of the company for 1 - 2 years or so. They aren't specifically banned. However, many will be banned in my opinion. The FTC says this:

Non-solicitation agreements are generally not non-compete clauses under the final rule because, while they restrict who a worker may contact after they leave their job, they do not by their terms or necessarily in their effect prevent a worker from seeking or accepting other work or starting a business. However, non-solicitation agreements can satisfy the definition of non-compete clause in § 910.1 where they function to prevent a worker from seeking or accepting other work or starting a business after their employment ends. Whether a non-solicitation agreement—or a no-hire agreement or a no-business agreement, both of which were referenced by commenters, as discussed previously—meets this threshold is a fact-specific inquiry. 

Weasel words:  “It is not an unfair method of competition to enforce or attempt to enforce a non-compete clause or to make representations about a noncompete clause where a person has a good-faith basis to believe that this part 910 is inapplicable.” Not particularly helpful to give a weaselly way out. But the Court or FTC would have to determine that there was a good faith basis to believe that it fell within an exception or that the rule had been stayed by a court.

Notice required: Employers will have to send notices to everyone they have noncompetes with to advise them that the noncompete clause won't be enforced. It has to be hand-delivered or emailed/mailed. 

Existing causes of action: If you're sued for a noncompete or breached one before the effective date, the new rule doesn't apply. However, the FTC did a very nice brief on why these things shouldn't be enforced, and you should be able to use some of their analysis to argue issues like lack of a legitimate interest other than preventing competition, lack of good faith, and some other defenses.

How will this play out? I think the rule will be stayed by a red-friendly court and will be litigated. So it's unlikely it will actually go into effect this year, if at all. 

But let's say employers send out those notices and then the rule is stayed or reversed? What will happen then? Can they say never mind? Or is the noncompete void? Will employers who send the notices have to get new ones signed? I would think that they would be difficult to enforce after the notice goes out. 

One thing is for sure - employment lawyers will be plenty busy for awhile after this.

Noncompete law is very state-specific until this rule goes into effect, so if you have a noncompete agreement, talk to an employee-side employment lawyer in your state if you want to understand your rights and responsibilities.

11th Circuit Stops Florida's "Stop Woke" Law Based on 1st Amendment

I know. I know. I keep saying there's no such thing as free speech at work. But while you workers don't have First Amendment protection in private workplaces, private employers do. Because corporations are "people" too. The distinction: the First Amendment prohibits restrictions on speech by government, not by individuals or corporations.

Confused yet? Well, I'm here specifically to discuss Florida's "Stop Woke" law* that said employers couldn't have trainings about not engaging in racism and discrimination in the workplace. The 11th Circuit just held that "Stop Woke" is a clearly illegal restriction on corporate free speech.

Here are some key excerpts from the opinion:

The State of Florida seeks to bar employers from holding mandatory meetings for their employees if those meetings endorse viewpoints the state finds offensive.  But meetings on those same topics are allowed if speakers endorse viewpoints the state agrees with, or at least does not object to.  This law, as Florida concedes, draws its distinctions based on viewpoint—the most pernicious of dividing lines under the First Amendment.  But the state insists that ordinary First Amendment review does not apply because the law restricts conduct, not speech.

The Act says employers cannot subject “any individual, as a condition of employment,” to “training, instruction, or any other required activity that espouses, promotes, advances, inculcates, or compels” a certain set of beliefs.  Id.  It goes on to list the rejected ideas, all of which relate to race, color, sex, or national origin

Discussion of these topics, however, is not completely barred—the law prohibits requiring attendance only for sessions endorsing them.  Id. § 760.10(8)(b).  Employers can still require employees to attend sessions that reject these ideas or present them in an “objective manner without endorsement of the concepts.” 

 By limiting its restrictions to a list of ideas designated as offensive, the Act targets speech based on its content.  And by barring only speech that endorses any of those ideas, it penalizes certain viewpoints—the greatest First Amendment sin.  Florida concedes as much, even admitting that the Act rejects certain viewpoints. 

Florida has no compelling interest in creating a per se rule that some speech, regardless of its context or the effect it has on the listener, is offensive and discriminatory.  “It is firmly settled that under our Constitution the public expression of ideas may not be prohibited merely because the ideas are themselves offensive to some of their hearers.” 

No matter how hard Florida tries to get around it, “viewpoint discrimination is inherent in the design and structure of this Act.”  NIFLA, 585 U.S. at 779 (Kennedy, J., concurring).  Given our “profound national commitment to the principle that debate on public issues should be uninhibited, robust, and wide-open,” the answer is clear: Florida’s law exceeds the bounds of the First Amendment.  New York Times Co. v. Sullivan, 376 U.S. 254, 270 (1964).  No matter how controversial the ideas, allowing the government to set the terms of the debate is poison, not antidote.

* I've written about this law before, here and here.

Beware Billionaires Who Want To Gut NLRB

Amazon has now joined SpaceX and Trader Joe's in asking that the National Labor Relations Board be deemed unconstitutional. With the Supreme Court in its current configuration, there's a real possibility that they could decide NLRB should no longer exist or be substantially gutted. 

That would be a terrible thing for employees, and for Americans in general. Here's why.

NLRB is the agency that handles unfair labor practices complaints against both employers and unions. That's what they're mostly known for. But they do so much more. Here are some lesser-known rights NLRB enforces:

• The right to discuss your pay with coworkers
• The right to discuss working conditions with coworkers
• The right to complain about working conditions
• The right to discuss forming a union
• The right to refuse to join a union
• The right to assist or refuse to assist a union

Without the NLRB, these rights would have to be dealt with in courts, if at all. That would clog the court system and make it more difficult for workers to enforce their rights.

Unions are good for America. They're good for the economy. When unions were strong, we had a strong middle class that could afford things like houses and college. We're in the horrible economy we're in because Republicans have systematically done everything they could to gut unions and reduce their power in workplaces and in politics.

Amazon and Trader Joe's, you should be ashamed of yourselves. SpaceX, well, what can I say? Seems like there's no shame to be had there anymore.

While unions are on the resurgence, we'll see more efforts like this one to destroy unions and worker power altogether. So vote well.