BREAKING: The FTC just banned non-compete agreements.
The Federal Trade Commission has issued a final rule making it illegal for bosses to make workers sign noncompetes in any scenario, and voiding nearly all existing noncompetes.
This is a game changer for American workers. pic.twitter.com/9n1tJWpQl4
— More Perfect Union (@MorePerfectUS) April 23, 2024
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Back in 2023, I learned that both Subway and Jimmy John’s used non-competes and that struck me as complete and total B.S..
Well, those guys up’n ruined it for everybody.
Now, back in 1996, Vizcaino v. Microsoft was decided and I was thrilled because I was a temp at Global Conglomerate and I thought that I wouldn’t be jerked around anymore. Well, it wasn’t too long after that that one of my tempy co-workers announced that management talked to him and laid him off but, they said, they’d pay for his unemployment and they’d buy him a PlayStation and they’d re-hire him (as a temp) in six months.
My temp company rebranded itself as a managed services contracting company and I went home one day with one badge and came back the next day and got a new badge and did the same job at the same desk that I had the day before. I was an employee! But an employee of the managed services company and not an employee of Global Conglomerate.
Anyway, my initial impulse is to be pleased.
But my secondary impulse is to think “yeah, this will make some things worse, probably.”
I’d suggest that OJT is going to go away but it’d already been gone for a while by the time that the whole Global Outsourcing megatrend took off.Report
California has banned non-competes for decades. It’s one of the reasons why Silicon Valley sprung up in California than near Boston and NY where the old line tech companies were. There is still OJT in California and there was plenty of dynamism in the California economy. Whatever stifled dynamism there is isn’t due to the lack of NCAsReport
My take is it’s the right idea but probably taken a little bit too far. These things should be completely unenforceable against most employees most of the time. However at certain levels of seniority and talent there’s a real quid pro quo happening. It isn’t unreasonable for businesses to get a restriction on those types within traditional parameters. Not being able to do it may create its own inefficiencies and tougher to do transactions.Report
Some of the top questions under the tweet are asking about Pro Wrestling and MMA.
I mean, I understand why the WWE gives wrestlers new names/gimmicks when they come in and don’t give them to the wrestlers after they leave. Poor Dolph Ziggler is now “Nic Nemeth”. Who the hell is “Nic Nemeth”? Oh! He’s Dolph Ziggler.
So maybe we’ll see movie studios do stuff like bring up some kid from the minors on Disney or Nickelodeon and give them a new name and package (“Alex Drostrum no more… As of today, you’re going to be Sal Wringer!”) and then when the kid tries to make a movie with Paramount instead of New Line, the kid will get to enjoy a new name.
I also wonder if this means that Pierce Brosnan will be able to wear a black-tie tuxedo in future movies.
But for stuff like “We’ve just bought your company for a kabillion dollars, sign here and sign this non-compete saying that you won’t start up a new company competing with us tomorrow”… well, I’ve gotta say that I see the utility of allowing those kinds of deals.Report
I don’t really care about the store brand frosted flakes impact to entertainment. It doesn’t really change the incentives.
Where I have quibbles (and I want to be clear it’s quibbles on minor points, not the broad policy) it’s the impact on start-up business. Depending on what the exceptions are and how they work we could have a situation where instead of having to buy a company, or a piece of IP, all a bigger company has to do is offer a raise to the 2 or 3 people that made the secret sauce. Sure there are other ways to attack that, but compare the burden of proving someone violated a confidentiality agreement behind closed doors or misappropriated trade secrets that reside in their brains, as opposed to just proving ‘person went to competitor within 1 year of resigning.’ There’s a plausible bad outcome where all the big, monopolistic businesses suck up all the talent more than they already do and only a fool invests the time and money in trying to outsmart them. It’s the narrow situation where what’s good for the particular employee may not be good for the marketplace at large.
Bottom line is ideally you want to try to both protect the 99% of people for whom this is not an issue while calibrating to keep the 1% where it is from being turned into a new weapon for big business to wield against the upstarts. Assuming the courts allow it to stand we will see how Lena did.Report
In the case of WWE, as I understand it, their non-competes involve paying the talent for the 90-day period. I think they are also typically a result of an employee getting an early release from their contract (requested or otherwise), but not when the contract expires. I imagine WWE will still be allowed to pay their employees to not work for 90-days.Report
Jeez, that’s not a non-compete, then. You’re still employed, you’re just not on tv.Report
WWE wrestlers can work before the 90 days is up – they just stop getting paid by WWE. Most stars never get the 90 day release. HHH didn’t care if Mustafa Ali showed up at an indy show early, but his WWE pay was probably higher, so he waited out the 90 days.Report
I think I was thinking about Jinder when I wrote that.
I thought that the WWE deal was “90 days, don’t compete” but if it’s “we’ll give you your downside for 90 days if you don’t compete”, it makes sense to avoid indies.
And it would make sense to join up with AEW. (Assuming that they can beat WWE’s downside, of course.)Report
I haven’t read the final rule. The earlier version of the rule I read had an exception for officers or holders of 5% or more of the equity. Did that survive? I haven’t read the final rule yet, so I don’t know. But that’s who you’re talking about here.
There is also no prohibition against non-disclosure agreements, non-circumvention agreements, or other members of the trade secrets family of restrictive covenants.Report
I haven’t read it either. Some of the commentary I have seen seems to suggest the final rule was 20% and that some of the exceptions are gone. I expect to receive official orders to give myself a crash course in the coming days.Report
At certain levels of seniority and talent the companies injured can and will ruinously sue the heck outta the employees and employers concerned and will be just fine. To whatever degree they aren’t, then they’ll have to use alternative measures and I weep not a single tear for them since corporate America brought this upon themselves and it’s richly deserved. I think bombing non-competes from orbit is good policy in general and as a warning to companies the next time they get the bright idea of trying to expand a boutique rule for senior talent to all employees.Report
No disagreement that it was wrong to do and that corporate America brought this on itself.
I just think you also want to get the policy right for its own sake. There are times where the ability to buy a level of loyalty or exclusive rights is what it takes to juice investment in products and ideas. Maybe they’ve threaded that needle right. Time will tell.Report
I agree, and I think that, as both solution and as a stick/learning opportunity, this policy is right. Time will tell if it’s an overreach but I very much doubt it is. There’s lots of ways to pay people to agree to stuff that’ll encumber their ability to smuggle out trade secrets etc… Now there isn’t a way to do it without paying them and good riddance to it.Report
Comeuppance is comeuppance.
But in terms of the particular nuance at issue, trade secret law, confidentiality clauses, etc. are a substitute in theory much more than practice. Having had the unfortunate experience of dealing with disputes that touched on these things I feel comfortable saying that certain evidentiary realities make those restrictions among the hardest to enforce. There’s almost never a smoking gun, the cost of discovering one (or not) is often prohibitive, and even where one is found the damage tends to have been done in a way that can’t be meaningfully remediated.
So we definitely want to release the average person from ever having these kinds of terms hanging over their heads. And to be clear I’ve supported hard restrictions on non-competes for years, or in the alternative the courts just plain old refusing to enforce them. But there are other kinds of bad actors out there and we can walk and chew bubble gum.Report
Fair enough, but it would not be hard, legislatively/regulatorially-if some truly bad outcomes occur, to roll this ban back on the most meritorious edge cases. The ban won’t create a powerful group of dedicated voters passionately in favor of maintaining a blanket bad.Report
I agree. The bigger threat currently is that the courts say that the rule goes beyond the FTC’s legislative mandate. If that happens it’s totally an issue the Biden admin should run on.Report
For sure! The supreme court, and all the courts, lives and dies on their legitimacy. If they keep leaping up and down on that branch it’s going to start to break.Report
They also closed a loophole that let employers classify employees as salaried and then work them into the ground without paying them overtime.
Good on Joe.Report
Somebody on the twitters says that this will obviously be taken down by SCotUS due to the “Major Questions Doctrine“.
According to the wikipedia:
My first take: “That makes sense”
My second take: “Wait. How often does that get selectively used or selectively ignored?”Report
The alleged “major questions” doctrine is something that’s been floating around conservative legal scholarship for a while but only applied by SCOTUS in the last couple of years. It’s a preposterous response to Congress allowing – even directing – the Executive Branch to make rules to implement regulatory statutes. It’s all part and level of Republicans 50 year march to deregulate the US.Report