Non-Competes Are Dead?

Comes now the Federal Trade Commission with a new self-generated rule (meaning not the result of Congressional legislation) killing non-competes in the workplace except for senior employees making more than $151,164 — no idea what that number comes from — and who are part of the employers’ policy making process.

This has been brewing for a long time.

WTF is a “non-compete,” Big Red Car?

Ahhh, yes, let’s start at the beginning.

Many companies employ persons subject to a promise not to compete with their former employer for some specified period of time when they leave employment. In additon, the company mandates the employee not take a job with a competitor.

This is a way for employers to ensure employees do not leave and set up shop in competition with their former employer.


What else, Big Red Car?

Well, when an employee leaves, an employer is also concerned about possession and use of confidential, proprietary, and trade secret information. It is not uncommon to have a non-compete that also addresses the issue of the use and retention of such information.

Why does the FTC want to do this?

The FTC is controlled by the Democrats and it is an election year. Estimates indicate that 20% of all employees in the US are subject to non-competes. I can find no definitive authority for that number and it strikes me as high.

Only 1% of workers are in that category of making more than $151,164 and they’re probably Republicans anyway. Screw those Republicans.

The vote on the new rule went down along strict party lines with the three Dems voting “yes” and the two Reps voting “no.”

No surprise there. The Biden admin is wildly pro-labor (they also bought a lot of young voters by forgiving — actually transferring to others meaning you, amigo — college loan debt) and it is an election year.

Are there any good arguments for this, Big Red Car?

Yes, full disclosure: I have no problem with outlawing non-competes for the majority of employees though I am completely sympathetic to companies who spend valuable time and money training employees just to have them leave and set up a competitive shop.

The FTC says non-competes stifle innovation, startups, and job creation. As a general premise, I believe that, but I think the numbers are marginal.

The FTC says employers possess unfair power in the employer – employee relationship. I completely agree with that.

In fact, in the courts (specifically in California) many non-competes have been ruled as unenforceable since the employer did not pay what is called “independent consideration” to obtain the non-compete. I agree completely with this notion.

If you want to impact the conduct of a former employee after they are no longer receiving a paycheck, then you should have formerly paid for it. Seems fair.

What do you not like about this, Big Red Car?

I hate the idea of the FTC just making rules without Congressional action.

I hate the FTC invading the marketplace and unilaterally imposing feel good mandates on employers for thinly masked political reasons.

So, what happens now, Big Red Car?

Haha, you had to ask.

The normal cast of characters — US Chamber of Commerce, et al — has already filed suit to force the FTC to renege on its non-compete initiative.

Everything these days ends up in court.

Bottom line it, Big Red Car

A smart company will not rely upon non-competes to conduct its business.

A smart company will be careful about its churn and turnover rates and play offense rather than defense and retain key employees because they can’t find a better job.

This will take a couple of years to make it through the courts and by then we may have a new administration and a different FTC. Who knows?

But, hey, what the Hell do I really know anyway? In 45 years of founding and CEOing, I never had a problem with competition from within or former employees.