Noncompetes are Now Illegal

[Kevo]

The FTC ruled today to outlaw noncompetes in most cases.

I have personally seen several people's careers ruined over noncompetes. Worker accepted roles at other companies in the same industry and vindictive executive staff threatened to sue the new employer, who in turn terminated the newly highered account manager or operations person.

No, your third tier tech company shouldn't be allowed to threaten litigation if an account manager or operations person moves on to another role for more money. Many of the most valuable companies in the world are headquartered in a state where noncompetes are functionally outlawed. Your third tier tech company doesn't need to protect itself in a way that Google or Meta or Apple cannot.

Treat employees well enough so that they don't leave, or allow them to go to greener pastures to advance themselves in a free market. NDA's cover the previous employer if they are worried about proprietary information.

Also, fuck the US Chamber of Commerce.

/end rant

[BmillsSkier]

Looking forward to reading the new rule. Non-solicit provisions still remain from what I hear, which is my guess now employers will now go after employees. Sure, you can compete, but you can’t solicit our customers, employees or targets.

In my M&A sandbox, I fully expect noncompetes that are bargained for consideration as part of the purchase price for a business will still be enforceable.

Happy for employees now that don’t have to put their careers on hold or worse thanks to these consideration-less conditions to their employment.

[Crusty]

The FTC ruled today to outlaw noncompetes in most cases.

I have personally seen several people's careers ruined over noncompetes. Worker accepted roles at other companies in the same industry and vindictive executive staff threatened to sue the new employer, who in turn terminated the newly highered account manager or operations person.

No, your third tier tech company shouldn't be allowed to threaten litigation if an account manager or operations person moves on to another role for more money. Many of the most valuable companies in the world are headquartered in a state where noncompetes are functionally outlawed. Your third tier tech company doesn't need to protect itself in a way that Google or Meta or Apple cannot.

Treat employees well enough so that they don't leave, or allow them to go to greener pastures to advance themselves in a free market. NDA's cover the previous employer if they are worried about proprietary information.

Also, fuck the US Chamber of Commerce.

/end rant

How can the new employer be sued? By definition they were not a party to the noncompete agreement.

[skinipenem]

Quick read shows the final rule doesn't apply to everyone:

"Employers, however, are prohibited from entering into or enforcing new noncompetes with senior executives. The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions."

So, pretty much, not dentists.

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[mud]

Between this and the recent union win in the south I think the working class may be rising again to eat the rich.

[Kevo]

How can the new employer be sued? By definition they were not a party to the noncompete agreement.

Once the new employer is aware of the noncompete they are at risk of a "tortious interference" or 'intentional interference" suit from the previous employer.

I've seen several people (former coworkers from a particularly egregious employer) lose their new jobs a few weeks after leaving.

Details and case law (state specific) here.

It is my understanding that once the new employer is made aware of the noncompete they can be liable.

[BmillsSkier]

Quick read shows the final rule doesn't apply to everyone:

"Employers, however, are prohibited from entering into or enforcing new noncompetes with senior executives. The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions."

So, pretty much, not dentists.

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You’re reading that out of context. Employers MAY enforce existing noncompetes against key executives, but may NOT enter into new noncompetes with key executives. This carve-out only applies to key executives. All other regular employees noncompetes are invalidated.


The carve-out:

“ Under the final rule, existing noncompetes for senior executives can remain in force. Employers, however, are prohibited from entering into or enforcing new noncompetes with senior executives. The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions.”

https://www.ftc.gov/news-events/news...ng-noncompetes


“ Under the FTC’s new rule, existing noncompetes for the vast majority of workers will no longer be enforceable after the rule’s effective date. Existing noncompetes for senior executives - who represent less than 0.75% of workers - can remain in force under the FTC’s final rule, but employers are banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives. Employers will be required to provide notice to workers other than senior executives who are bound by an existing noncompete that they will not be enforcing any noncompetes against them.”

[Kevo]

Quick read shows the final rule doesn't apply to everyone:

"Employers, however, are prohibited from entering into or enforcing new noncompetes with senior executives. The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions."

So, pretty much, not dentists.

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The full quote is "Under the final rule, existing noncompetes for senior executives can remain in force. Employers, however, are prohibited from entering into or enforcing new noncompetes with senior executives. The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions."

No new noncompetes, luckily.

I've been negotiating away noncompetes for over a decade. I've seen people who haven't had the knowledge or the leverage to do so get fucked out of dream jobs.

[dunfree]

Awww shit, Jimmy John’s is fucked now.

[BmillsSkier]

Jimmy’s John’s

[Rideski]

Ruth's Chris's
And fuck all the companies that tried to ensnare me in non competes which I promptly redlined the contract and said fuck that noise.

[Harry]

Between this and the recent union win in the south I think the working class may be rising again to eat the rich.

About fucking time.


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[neufox47]

Crazy the amount of people who are against this regulation who also aren’t owners of companies.


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[skinipenem]

The full quote is "Under the final rule, existing noncompetes for senior executives can remain in force. Employers, however, are prohibited from entering into or enforcing new noncompetes with senior executives. The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions."

No new noncompetes, luckily.

I've been negotiating away noncompetes for over a decade. I've seen people who haven't had the knowledge or the leverage to do so get fucked out of dream jobs.

Good news! Damn my "quick" cursory read.

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[TBS]

Non-competes/non-solicitation agreements have been generally unenforceable in CA and OR (and other states I can’t recall) for some time. In WA, it’s only enforceable for certain highly compensated people.

The big money nowadays is in jacking up tech employees on claims of violating their NDA

[fastfred]

Between this and the recent union win in the south I think the working class may be rising again to eat the rich.

we can only hope but it's doubtful
the system has a way of twisting things easily so people work against their own interests as a human being
oh wait once "they" ban ticktock people will start loosing their minds and rise up against the government

[HappyCamper]

I suspect it will be on a fast-track to the US Supreme Court where it's survivability seems iffy.

But I'd also expect state legislatures to take this up independently and we'll get a larger contingent of states banning them.

[schindlerpiste]

Non-competes (n-c) have always been geographical and with a time limit. The six figure guys who have a non-compete are bound, but future 6 figure guys will have none. Also, these high-end guys are re-negotiating their contracts all the time. Suffice it to say that there will be no n-c in future contracts. It will be interesting how the market deals with this salary-wise. Specialized skills, intellectual property, quantifiable knowledge and experience become more of a commodity. When people receive huge signing bonuses, they are in a way being compensated to keep their learned skills. customers and intangible property within that company. This ruling throws all that out the window. What is to stop a junior broker at Merrill from using his/her job to cultivate [already existing] clients and then leaving, and taking those clients with him? I'm not saying that it is wrong; I'm just saying that it is a problem to keep an eye on. Client lists seem like a powder keg to me.

Also, this may have huge implications in the sale of small businesses

[mall walker]

Quick read shows the final rule doesn't apply to everyone:

"Employers, however, are prohibited from entering into or enforcing new noncompetes with senior executives. The final rule defines senior executives as workers earning more than $151,164 annually and who are in policy-making positions."

So, pretty much, not dentists.

Dunno what dentists you hang with but that ain't that much money

[stuckathuntermtn]

Everyone is now promoted to Senior Executive.

[TNKen]

I've litigated lots of non-competes over the years. Many have some sort of drafting error that guts them. Most states these days have adopted a "reasonable" reform policy that lets a person continue employment. Some states, like Virginia, say if it is unreasonable in time, scope, duration, it is invalid.

The medical industries head is spinning over this new ruling by the FTC as it hits HCE's at the top level who they thought they had locked down in perpetuity.

Last year, Virginia legislated a "low wage employee" prohibition on non-competes reaching down to the blue collar worker.

[BmillsSkier]

Non-competes (n-c) have always been geographical and with a time limit. The six figure guys who have a non-compete are bound, but future 6 figure guys will have none. Also, these high-end guys are re-negotiating their contracts all the time. Suffice it to say that there will be no n-c in future contracts. It will be interesting how the market deals with this salary-wise. Specialized skills, intellectual property, quantifiable knowledge and experience become more of a commodity. When people receive huge signing bonuses, they are in a way being compensated to keep their learned skills. customers and intangible property within that company. This ruling throws all that out the window. What is to stop a junior broker at Merrill from using his/her job to cultivate [already existing] clients and then leaving, and taking those clients with him? I'm not saying that it is wrong; I'm just saying that it is a problem to keep an eye on. Client lists seem like a powder keg to me.

Also, this may have huge implications in the sale of small businesses

Just to point out a bit of clarification, what you are talking about in your Merrill broker example is non-solicitation (of clients, employees, targets) and those are still enforceable.

As to your last part, take a look at my first post in this thread. Non-competes in connection with a sale of a business (small, mid or otherwise, just not publicly-held) are bargained for consideration, part of the Purchase Price, and reported on Buyer's and Seller's taxes (Form 8594). Those will not be affected at all by this rule as this rule only applies to employees.

[schindlerpiste]

As to your last part, take a look at my first post in this thread. Non-competes in connection with a sale of a business (small, mid or otherwise, just not publicly-held) are bargained for consideration, part of the Purchase Price, and reported on Buyer's and Seller's taxes (Form 8594). Those will not be affected at all by this rule as this rule only applies to employees.

I guess that I missed that. Is this something that you "expect", or know to be true. If it is in fact true, can you bargain away something that is illegal? Why would it be different for the sale of a small business than it is for an individual? I would argue that this may have something to do with a contract of adhesion.

[BmillsSkier]

I guess that I missed that. Is this something that you "expect", or know to be true. If it is in fact true, can you bargain away something that is illegal? Why would it be different for the sale of a small business than it is for an individual? I would argue that this may have something to do with a contract of adhesion.

I know this to be true. The rule only prohibits "for-profit employers from entering into new non-compete agreements with all employees, including senior executives". Business owners selling their business to a Buyer are not employees.

The Buyer and Seller in the sale of a business both come together to bargain for, and agree upon, a non-competition provision (duration, geographic scope, various carve-outs) for the Seller principal(s), each of which receive compensation for that non-competition provision which is reported on their taxes for that year. It's a contractual agreement, not a contract of adhesion that is a condition to employment.

Setting aside that the rule only applies to employers and employees, if a business owner doesn't want to agree to a non-compete provision in connection with the sale of their business then they are free to accept a lower Purchase Price to forego it and routinely do.

[MakersTeleMark]

Please contact a lawyer before spewing this shit. Wow, bitcoin is going to the moon too.