Federal Trade Commission Proposes Ban On "Non-Competes"

[TwiceHorn 31663]

Interdasting.  https://www.ftc.gov/news-events/news/press-releases/2023/01/ftc-proposes-rule-ban-noncompete-clauses-which-hurt-workers-harm-competition

I have been involved in about a dozen or so of these disputes and they almost always turn into trade secret disputes and the covenant not to compete falls by the wayside as likely unenforceable.

I have not seen them used against low-level employees, so I think the notion that it limits their mobility is overblown.

I think in the context of business sales, where the seller is precluded from competing with the sold business for a period of time, the ban may actually cause a small amount of harm, but those may be outside the scope of the proposed ban, as it seems to focus on employer-employee relationships.

Edited January 19, 2023 by TwiceHorn

[Parliament 14357]

Don't most no-competes come with a nice signing bonus?  I fail to see what the problem is here.

[DalTxHornFan 3121]

A good friend and client of mine runs the "Five Minute Law" blog, and this is his take on the proposed FTC rule.  Worth a read if you are interested in this subject.

 What Everybody’s Missing About the FTC’s Proposed Non-Compete Ban

by Zach Wolfe in Non-CompetesJan 17, 2023

https://fiveminutelaw.com/2023/01/17/what-everybodys-missing-about-the-ftcs-proposed-non-compete-ban/

[Incredulity 11684]

Lena Khan is taking some very aggressive actions at the FTC. It will be interesting to see what gets accomplished. This, the attempt to use tied house beer laws to stop Activision/Microsoft merger and Robinson-Patman pricing action against Coke and Pepsi are huge philosophical changes versus the last 30 years in enforcement by the FTC.

[Guest]

10 hours ago, TwiceHorn said:

Interdasting.  https://www.ftc.gov/news-events/news/press-releases/2023/01/ftc-proposes-rule-ban-noncompete-clauses-which-hurt-workers-harm-competition

I have been involved in about a dozen or so of these disputes and they almost always turn into trade secret disputes and the covenant not to compete falls by the wayside as likely unenforceable.

I have not seen them used against low-level employees, so I think the notion that it limits their mobility is overblown.

I think in the context of business sales, where the seller is precluded from competing with the sold business for a period of time, the ban may actually cause a small amount of harm, but those may be outside the scope of the proposed ban, as it seems to focus on employer-employee relationships.

There have recently been retailers start coming up with rules, such as " If you hire one of our employees, they cannot service our stores for a year."

It is an attempt to stop the bleeding on the labor front and to stem outright recruiting, which is very rare at that level; but I am like, "They didn't sign a non-compete when they started with you, nor are they highly compensated or have trade secrets. Pay em better and treat em right, and they won't want to leave your fucking sweatshop environment." 

 It's bullshit, but it's also still their house, so to speak.   I don't think it's remotely legally enforceable; but then there is that ongoing business relationship to maintain.

Edited January 19, 2023 by slorch

[956 Worldwide 34882]

11 hours ago, TwiceHorn said:

Interdasting.  https://www.ftc.gov/news-events/news/press-releases/2023/01/ftc-proposes-rule-ban-noncompete-clauses-which-hurt-workers-harm-competition

I have been involved in about a dozen or so of these disputes and they almost always turn into trade secret disputes and the covenant not to compete falls by the wayside as likely unenforceable.

I have not seen them used against low-level employees, so I think the notion that it limits their mobility is overblown.

I think in the context of business sales, where the seller is precluded from competing with the sold business for a period of time, the ban may actually cause a small amount of harm, but those may be outside the scope of the proposed ban, as it seems to focus on employer-employee relationships.

Non-competes enforced by courts are antithetical to an actual free market and should be banned, as you mention it’s actually a dispute over trade secrets (which can be enforced separately) or it’s a bullshit tactic to try and keep workers who could make more elsewhere from leaving. 
 

Non-enforcement against low-level workers is fine but even representing to workers that they are bound by one is an abusive practice, especially as they are the workers least likely to be sophisticated enough to understand they are unenforceable or willing to take the risk of challenging them. 

[deadshank 24653]

I’m torn on NCs.  
 

For work-a-day, ham and egg type employees NCs seem punitive. 
 

If a company is sold, the seller should be contractually bound to sit out for a period of time and not immediately re-open to take back business from the buyer of the old business.  

[Bevo 13622]

I have a friend who wants to start his own practice in Cali. So I am considering purchasing the real estate and the equipment and bringing in staff for him. I'll own a portion of the practice and the real estate. So let's say he is good at his job and my efforts in advertising pay off as does my choice of staff. What is to stop him from opening a practice next door after his clientele are established? It seems like a pretty sweet deal for him. I assumed most of the risk. I absorbed most of the early losses. He can reap all the gains. I get the flipside completely, but to block him from being able to move right next door seems like a minimal inconvenience.

[wildcat09 29449]

Not long ago, Jimmy John’s made all their “sandwich artists” sign noncompetes. They dropped the policy after public pressure, but that’s at least one example of them being used against low-level workers and I'm sure there's plenty more.

[deadshank 24653]

25 minutes ago, Bevo said:

I have a friend who wants to start his own practice in Cali. So I am considering purchasing the real estate and the equipment and bringing in staff for him. I'll own a portion of the practice and the real estate. So let's say he is good at his job and my efforts in advertising pay off as does my choice of staff. What is to stop him from opening a practice next door after his clientele are established? It seems like a pretty sweet deal for him. I assumed most of the risk. I absorbed most of the early losses. He can reap all the gains. I get the flipside completely, but to block him from being able to move right next door seems like a minimal inconvenience.

 

[Nice Guy Eddie 13537]

In my experience, more then a few small companies require even their low level employees to sign them. I don’t mean the cleaning crew. Zero signing bonus. It’s a method to keep wages low by eliminating some job opportunities. Sue a few ex-employees and you get the current ones in line.

and the lower level employees don’t have much leverage to say no. You’re going to refuse to sign on Day 1? After you quit your last job and left?

When accepting a new job, ask for a copy of everything they require to be signed.

[troph 24916]

1 hour ago, Bevo said:

I have a friend who wants to start his own practice in Cali. So I am considering purchasing the real estate and the equipment and bringing in staff for him. I'll own a portion of the practice and the real estate. So let's say he is good at his job and my efforts in advertising pay off as does my choice of staff. What is to stop him from opening a practice next door after his clientele are established? It seems like a pretty sweet deal for him. I assumed most of the risk. I absorbed most of the early losses. He can reap all the gains. I get the flipside completely, but to block him from being able to move right next door seems like a minimal inconvenience.

In California? Not much will prevent that. Non-competes are at least generally unenforceable. DOL or was it DOJ had to intervene in the tech industry a number of years ago with the non-solicitation clauses between tech companies.

1 hour ago, 956 Worldwide said:

Non-competes enforced by courts are antithetical to an actual free market and should be banned, as you mention it’s actually a dispute over trade secrets (which can be enforced separately) or it’s a bullshit tactic to try and keep workers who could make more elsewhere from leaving. 
 

Non-enforcement against low-level workers is fine but even representing to workers that they are bound by one is an abusive practice, especially as they are the workers least likely to be sophisticated enough to understand they are unenforceable or willing to take the risk of challenging them. 

I agree with you 100%. Legal advice is unfortunately a luxury. So once an employee signs, the burden is on them to get the advice and then withstand the possible nasty lawyer letter. I don’t send lawyer letters without a willingness to back it up but plenty will send a cease and desist on a NC agreement everyone (except the employee) knows is unenforceable.

1 hour ago, deadshank said:

I’m torn on NCs.  
 

For work-a-day, ham and egg type employees NCs seem punitive. 
 

If a company is sold, the seller should be contractually bound to sit out for a period of time and not immediately re-open to take back business from the buyer of the old business.  

I’ve yet to study the proposed ban but selling a business is where a NC makes perfect justifiable sense.

 

1 hour ago, wildcat09 said:

Not long ago, Jimmy John’s made all their “sandwich artists” sign noncompetes. They dropped the policy after public pressure, but that’s at least one example of them being used against low-level workers and I'm sure there's plenty more.

That’s obscene.

13 minutes ago, Nice Guy Eddie said:

In my experience, more then a few small companies require even their low level employees to sign them. I don’t mean the cleaning crew. Zero signing bonus. It’s a method to keep wages low by eliminating some job opportunities. Sue a few ex-employees and you get the current ones in line.

and the lower level employees don’t have much leverage to say no. You’re going to refuse to sign on Day 1? After you quit your last job and left?

When accepting a new job, ask for a copy of everything they require to be signed.

  This is my experience too. 
 

as a corporate lawyer I’ll draft the NCs when a client wants them, personally I don’t like them at all. I think a non solicitation of customers and employees is all a business really needs. You can leave and work in the industry but don’t take what you know about us and raid our customers and steal our employees. These are generally thought of as the more reasonable NC clauses and I hope they remain enforceable. 

[956 Worldwide 34882]

NCs when someone is selling their company to someone else are an entirely different thing from a market perspective and ethical perspective than NCs as a condition of employment at a company.
 

ESPECIALLY when employees are employed at-will.  Combining at-will with an NC is complete bullshit, that means it’s only “at-will” for their boss and not the worker. 

[smuggs 9354]

1 hour ago, wildcat09 said:

Not long ago, Jimmy John’s made all their “sandwich artists” sign noncompetes.

Good. I support Jimmy John's in maintaining their firm 2nd place standing behind Subway on the list of America's Most Nauseating Sandwiches.

[troph 24916]

8 minutes ago, 956 Worldwide said:

NCs when someone is selling their company to someone else are an entirely different thing from a market perspective and ethical perspective than NCs as a condition of employment at a company.
 

ESPECIALLY when employees are employed at-will.  Combining at-will with an NC is complete bullshit, that means it’s only “at-will” for their boss and not the worker. 

As an advocate for good labor practices, I’ve preferred matching contractual severance for the non compete period to ease the pain. In some instances it’s been given but usually not. I agree at will with NC clauses that put a general cloud over employment within the same industry are hideous.

Edited January 19, 2023 by troph

[TwiceHorn 31663]

I am not generally a huge fan of federal legislation in an area that has been traditionally one of state law, and this would qualify for that in spades.  I'm sure the constitutional justification is the interstate commerce clause, which I think has been abused in a federal legislative power-grab.  So, from that angle, this is broadly objectionable.  But, at the same time, this is a more legitimate regulation of a burden on interstate commerce than many laws justified under it (I'm looking at you Title 18, United States Code).

However, Texas (the lege and Supreme Court) have struggled for decades to strike a reasonable balance between enforcing covenants not to compete against low-level employees and permitting employers to protect their interests against higher-level employees that really do "possess the company jewels."  But, as noted in the postings and cited articles, that latter is really best addressed using IP/trade secrets and the "other types" of agreements, such as non-solicitation and non-raiding/recruiting.

The state of Texas law has been in such flux just in the 30 years I have been practicing that it is nigh unto impossible to draft a legally complying CNC that is enforced long after it is drafted and signed.  And for a good decade or so, any CNC not executed upon commencement of employment was pretty much DOA (Light v. Centel), so there was no possibility of "updating" a CNC during employment to comply with the latest edicts.  I'm sure it's similar in other states that attempt to give CNCs some enforceability.

So, this sort of ban, while potentially constitutionally infirm, does put states out of their misery on the CNC front with a blanket rule, and there's something to be said for that.  This doesn't bother me much.

Good discussion, glad I posted it.

Edited January 19, 2023 by TwiceHorn

[troph 24916]

The easiest answer is you buy the non compete period with full benefits and compensation but lawyers and judges gotta lawyer and judge.  Companies won’t do it unless it’s truly critical and that leaves the rank and file free to work. Analysis is easy, number of required non competes would plummet. Companies would complain but they would still have trade secret and CI protections. I think pay to (not) play seems too transactional or dirty for most, too simple for others, and too expensive for some, and many employers think it’s their god given right to lock up employees but I think a full severance package for the time frame would solve all the issues. 

Edited January 19, 2023 by troph

[troph 24916]

@TwiceHorn I agree with you re federal legislation intruding on state law matters and the abuse of the interstate commerce clause.  But (without looking into it) I suspect the days of NCCUSL and the coordination of state laws across 48-49 states (looking at you CA and LA) like the Uniform Commercial Code are probably behind us. Like with many federal laws, when the states fail to create uniformity or fail to strike a proper balance the feds have to step in. Though this is commercial at first glance, I think it’s as much about equality, civil rights and other humanitarian type legislation as it is commercial.
 

people talk about “right to work” in the NC space and that’s mixing legal principles, but here I think “right to work” is the correct phrase and what makes it even a possible fundamental rights kind of situation. People should have a fundamental right to work, in this market and age of specialization it means in their industry. You take that away you’re in the realm of violating a person’s right to life, liberty, and the pursuit of happiness. So the feds should involve themselves imo.

So I fully support a federal law to provide uniformity and to protect the interests of the worker who has little leverage.

Edited January 19, 2023 by troph

[TwiceHorn 31663]

1 minute ago, troph said:

The easiest answer is you buy the non compete period with full benefits and compensation but lawyers and judges gotta lawyer and judge.  Companies won’t do it unless it’s truly critical and that leaves the rank and file free to work. Analysis is easy, number of required non competes would plummet. Companies would complain but they would still have trade secret and CI protections. I think pay to (not) play seems too transactional or dirty for most, too simple for others, and too expensive for some, and many employers think it’s their god given right to lock up employees but I think a full severance package for the time frame would solve all the issues. 

Yep, in the unobjectionable "sale of a business" context, the CNC is bought and paid for in a way that employment-related CNCs typically are not.

In that sense, Light v. Centel was on the right track in focusing the scrutiny on the "consideration" for the CNC, but they failed to set the bar high enough.

But, in the final analysis, it's easier just to have a blanket ban on them and force everyone toward the more narrowly tailored IP enforcement and related contractual provisions (I see non-solicitation and non-recruiting agreements as more directed to the IP issues).

[Dahobbs 17757]

13 hours ago, TwiceHorn said:

I have not seen them used against low-level employees, so I think the notion that it limits their mobility is overblown.

I know this has been addressed, but they are used all the time with lower level employees. They aren't likely to be enforced, but the very existence of them creates a cloud for the employee that does damage the labor market and the individual. I've advised clients on these over the years and my general advice is that the non-compete is likely non-enforceable, BUT there is a risk in proceeding contrary to the agreement. A ban like this at least makes it a little bit easier to give more clear advice. That said, this seems like something that should be done by Congress and not by an executive agency. 

[Neonmoon 38130]

1 hour ago, 956 Worldwide said:

NCs when someone is selling their company to someone else are an entirely different thing from a market perspective and ethical perspective than NCs as a condition of employment at a company.
 

ESPECIALLY when employees are employed at-will.  Combining at-will with an NC is complete bullshit, that means it’s only “at-will” for their boss and not the worker. 

This is the correct answer. 

[Js1 85662]

1 hour ago, 956 Worldwide said:

Combining at-will with an NC is complete bullshit, that means it’s only “at-will” for their boss and not the worker. 

‘Murica! Just like Supply Side Jesus intended

[956 Worldwide 34882]

16 minutes ago, Dahobbs said:

I know this has been addressed, but they are used all the time with lower level employees. They aren't likely to be enforced, but the very existence of them creates a cloud for the employee that does damage the labor market and the individual. I've advised clients on these over the years and my general advice is that the non-compete is likely non-enforceable, BUT there is a risk in proceeding contrary to the agreement. A ban like this at least makes it a little bit easier to give more clear advice. That said, this seems like something that should be done by Congress and not by an executive agency. 

I fully agree that legislation is the way forward, unfortunately (no CR) there’s a significant group that would be more likely to reinstate indentured servitude than to expand any protection to employees. So the choice is imperfect action or no action, as with many things. 

[Incredulity 11684]

1 hour ago, troph said:

but I think a full severance package for the time frame would solve all the issues

A severance package does nothing in the instance of an employee making a move to a competitor.

As noted multiple times above most NC agreements are not enforceable.  It is one of the most misunderstood aspects of the work place. 

[956 Worldwide 34882]

2 minutes ago, Incredulity said:

A severance package does nothing in the instance of an employee making a move to a competitor.

As noted multiple times above most NC agreements are not enforceable.  It is one of the most misunderstood aspects of the work place. 

Yep. And I would also say that in many cases, severance does not outweigh the potential damage of a long-term employment gap. Freaking Jimmy Johns didn’t want you making another got-damn sandwich for TWO YEARS. 
 

Here’s a more fair idea— if an employee gets another offer, then the current employee can pay them THAT salary in exchange for not working. If all this is real so important to them. 
 

Almost all the real concerns can be addressed. I payment agreements for training or relocation if you quit too soon. IP/trade secrets/no recruitment agreements.  
 

The real reason most of these companies want NCs is to keep wages low by preventing employees from fully participating in the labor market. It’s simple protectionism. 

[Dahobbs 17757]

8 minutes ago, Incredulity said:

A severance package does nothing in the instance of an employee making a move to a competitor.

As noted multiple times above most NC agreements are not enforceable.  It is one of the most misunderstood aspects of the work place. 

That's precisely what makes them an unfair/deceptive practice. The sophisticated employer knows they aren't enforceable. The employee usually doesn't. A straight ban on them makes sense from that perspective alone. 

[Incredulity 11684]

3 minutes ago, 956 Worldwide said:

Here’s a more fair idea— if an employee gets another offer, then the current employee can pay them THAT salary in exchange for not working

paying people not to work.  2021 and 9% inflation say hello.

[Nice Guy Eddie 13537]

8 minutes ago, Dahobbs said:

That's precisely what makes them an unfair/deceptive practice. The sophisticated employer knows they aren't enforceable. The employee usually doesn't. A straight ban on them makes sense from that perspective alone. 

Even if an employee realizes or believes that its bs, they don't want to hire a lawyer to defend them. Many people can't afford a $500 emergency much less pay a lawyer for their time.

Edited January 19, 2023 by Nice Guy Eddie

[Incredulity 11684]

2 minutes ago, Nice Guy Eddie said:

Many people can't afford a $500 emergency much less pay a lawyer for their time.

yet no one advocates banning lawyers.........interesting.

 

To that point, it probably wasn't Jimmy John or the COO of JJ's who came up with the idea to have sandwich artists sign NC agreements.  That reeks of in house counsel.

Edited January 19, 2023 by Incredulity

[Dahobbs 17757]

2 minutes ago, Incredulity said:

paying people not to work.  2021 and 9% inflation say hello.

Obviously the goal isn't to pay people not to work. His goal is to restrict the usage of non-competes. In that system, companies would only use them when they really are valuable and thus worth paying for. 

[956 Worldwide 34882]

3 minutes ago, Incredulity said:

paying people not to work.  2021 and 9% inflation say hello.

No company would agree to do it, they’d let their employee walk. Thereby demonstrating how NCs are really in place to depress wages and aren’t about super secret knowledge. 

[wildcat09 29449]

4 minutes ago, Dahobbs said:

That's precisely what makes them an unfair/deceptive practice. The sophisticated employer knows they aren't enforceable. The employee usually doesn't. A straight ban on them makes sense from that perspective alone. 

Yeah, theoretical arguments against government intervention in markets tends to assume equally informed parties.  Here, that's pretty obviously not the case so it's not even hard for those who generally oppose government intervention to acknowledge that some is needed in this case.

[Dahobbs 17757]

1 minute ago, Incredulity said:

yet no one advocates banning lawyers.........interesting.

How would that help? 

[Incredulity 11684]

1 minute ago, Dahobbs said:

How would that help? 

LOL

[Dahobbs 17757]

15 minutes ago, Incredulity said:

LOL

I'm serious. There is a power imbalance between a company and an employee. The current state is that companies will often put likely non-enforceable non-competes in their employment agreements. The employee has no real way to know they are non-enforceable, and even if he suspects they are, has to gamble that the company will not try to enforce if if it is breached. Not having lawyers, in this instance, just means that the sophisticated employer has even more power because it can still pursue legal remedies, whereas the employee has no means to arm himself in defense. 

Honestly though, you're all over the place in this thread. You recognize non-competes are generally not enforceable. You appear to recognize there is an imbalance of power of the employer/employee relationship. Yet you also hate the idea of making a clear ban on the thing that generally isn't enforceable and is used to abuse the employee and the labor market. Why? 

Edited January 19, 2023 by Dahobbs

[TwiceHorn 31663]

1 hour ago, Dahobbs said:

I know this has been addressed, but they are used all the time with lower level employees. They aren't likely to be enforced, but the very existence of them creates a cloud for the employee that does damage the labor market and the individual. I've advised clients on these over the years and my general advice is that the non-compete is likely non-enforceable, BUT there is a risk in proceeding contrary to the agreement. A ban like this at least makes it a little bit easier to give more clear advice. That said, this seems like something that should be done by Congress and not by an executive agency. 

Fair point.  I should say I have never seen one used against a lower-level employee, doesn't mean they don't exist.

And, as has been mentioned, a lot of the CNC litigation that I have seen is largely in terrorem, to hassle the departing employee and "set an example" for other employees moreso than protect a legitimate interest of the employer.

So that idea of terrorizing employees not to leave is pretty legit.  Or at least the intention of employers to do that, whether it succeeds or not.

[Incredulity 11684]

Just now, Dahobbs said:

Yet you also hate the idea of making a clear ban on the thing that generally isn't enforceable and is used to abuse the employee and the labor market. Why? 

I never said that.

I am somewhat indifferent to the ban.  I agree with the sentiment that it should be handled by Congress, but that ain't going to happen.

I think businesses should have ability to protect trade secrets and have some limited protections against former employees poaching current employees and customers.  Most of that should be handled by operating a good business.  

[956 Worldwide 34882]

There just needs to be a general re-education in what the free market means. Starting with “there will always be intervention and regulation, it’s only a question of who benefits.” 
 

So point one— when someone takes a job, gains experience, then looks around and says “I think I can do this better, I want to strike out on my own.”  THATS THE FREE FUCKING MARKET. That’s the American dream. That’s how we get competition. That’s how prosperity grows and consumers benefit. And sure, if you own the first company in town you don’t like it, but there’s no reason government should be allowed enforcing your attempt to create a cartel at the expense of consumers and workers and prospective competitors. 
 

If a plumber in Abilene refuses to take an apprentice unless they promise not to open their own shop, and the apprentice can take the deal or move to Midland— that’s a shit deal for everyone in Abilene except the plumber and a market failure and distortion. 
 

The idea that a free market means that the government enforces whatever contract you can sucker someone into signing is a childish form of libertarianism and the opposite of a market economy. 

[TwiceHorn 31663]

38 minutes ago, Incredulity said:

A severance package does nothing in the instance of an employee making a move to a competitor.

As noted multiple times above most NC agreements are not enforceable.  It is one of the most misunderstood aspects of the work place. 

What  severance package does do is make the departure "survivable" for the employee when they can't be employed in their chosen field in a position similar to what they had.  So that takes care of a lot of the problems of CNCs "unfairly" idling employees for their duration.  And it's why sale-of-a-business CNCs are less objectionable.  Presumably the seller gets enough money in the sale that they aren't economically compelled to go right back into business in competition with the buyer.

The other thing about it is "you can beat the rap, but you can't beat the ride."  If an employer chooses to sue you, and get a 14 day TRO, which is almost automatic, that can be very costly in terms of attorneys fees and possibly even a lost new job.  And that happens before the employee can spend $25k invalidating the CNC.

And a lot of CNC litigation is motivated by exactly that, so it just furthers the inequality of bargaining power that started the whole mess.

Edited January 19, 2023 by TwiceHorn

[Wulaw Horn 19157]

2 hours ago, troph said:

In California? Not much will prevent that. Non-competes are at least generally unenforceable. DOL or was it DOJ had to intervene in the tech industry a number of years ago with the non-solicitation clauses between tech companies.

I agree with you 100%. Legal advice is unfortunately a luxury. So once an employee signs, the burden is on them to get the advice and then withstand the possible nasty lawyer letter. I don’t send lawyer letters without a willingness to back it up but plenty will send a cease and desist on a NC agreement everyone (except the employee) knows is unenforceable.

I’ve yet to study the proposed ban but selling a business is where a NC makes perfect justifiable sense.

 

That’s obscene.

  This is my experience too. 
 

as a corporate lawyer I’ll draft the NCs when a client wants them, personally I don’t like them at all. I think a non solicitation of customers and employees is all a business really needs. You can leave and work in the industry but don’t take what you know about us and raid our customers and steal our employees. These are generally thought of as the more reasonable NC clauses and I hope they remain enforceable. 

Yeah- careful what you wish for if trying to get rid of all non competes. I absolutely would not buy a mom and pop without a reasonable non compete. Conversely, anyone making a Sandwich artist sign a non compete should be horsewhipped and then out in the stocks for public ridicule. 
I have no problem with a non compete that’s been negotiated for and value paid for it by two sophisticated parties. Anything else is pretty much total bullshit. 
I’ve been under a non compete  personally before when selling my business. I doubt I could have sold it without the non-compete so I was happy for it. 

[Dahobbs 17757]

1 minute ago, Incredulity said:

I never said that.

I am somewhat indifferent to the ban.  I agree with the sentiment that it should be handled by Congress, but that ain't going to happen.

I think businesses should have ability to protect trade secrets and have some limited protections against former employees poaching current employees and customers.  Most of that should be handled by operating a good business.  

Great, sounds like we are in agreement. No non-competes of the type that ban employment. Limited non-solicitation type of agreements are generally ok. Trade secrets are there own thing and I don't see any reason why a non-compete ban would affect them. 

[HouTex 1895]

1 hour ago, TwiceHorn said:

I am not generally a huge fan of federal legislation in an area that has been traditionally one of state law, and this would qualify for that in spades.  I'm sure the constitutional justification is the interstate commerce clause, which I think has been abused in a federal legislative power-grab.  So, from that angle, this is broadly objectionable.  But, at the same time, this is a more legitimate regulation of a burden on interstate commerce than many laws justified under it (I'm looking at you Title 18, United States Code).

However, Texas (the lege and Supreme Court) have struggled for decades to strike a reasonable balance between enforcing covenants not to compete against low-level employees and permitting employers to protect their interests against higher-level employees that really do "possess the company jewels."  But, as noted in the postings and cited articles, that latter is really best addressed using IP/trade secrets and the "other types" of agreements, such as non-solicitation and non-raiding/recruiting.

The state of Texas law has been in such flux just in the 30 years I have been practicing that it is nigh unto impossible to draft a legally complying CNC that is enforced long after it is drafted and signed.  And for a good decade or so, any CNC not executed upon commencement of employment was pretty much DOA (Light v. Centel), so there was no possibility of "updating" a CNC during employment to comply with the latest edicts.  I'm sure it's similar in other states that attempt to give CNCs some enforceability.

So, this sort of ban, while potentially constitutionally infirm, does put states out of their misery on the CNC front with a blanket rule, and there's something to be said for that.  This doesn't bother me much.

Good discussion, glad I posted it.

As a recovering labor/employment lawyer (employer side, early 90's) this is a good analysis--especially his commerce clause discussion.

As Twicehorn says, the battle now usually is fought over trade secrets, IP, and the employer's property.  In the old days, for example, a low-level salesperson would just take their rolodex/business cards from the former employer to make it easier to maintain their customer contacts at their new employer.  That stuff actually belongs to their old employer and a judge will order the employee to return what doesn't belong to them.  They can't steal their former employer's stuff. Now, with everything electronic it complicates matters (or does it?), but the concept still holds.  To address some of the more recent posts about sandwich "artists", it's really hard to justify a noncompete in that and similar employment scenarios.

[TwiceHorn 31663]

A couple of things people forget with regard to the notion that CNCs are generally difficult to impossible to enforce.  The first is that it is very costly (not in the grand scheme of litigation, but to an average Joe) to defend CNC litigation.  The second is that 15.51(c) of the Business & Commerce Code allows a court to reform a CNC to make it enforceable and to enforce it, under certain circumstances.

So, the idea that you can just visit a lawyer for a couple hundred bucks and rest assured that your CNC problems are not problems, is pretty naive.

[troph 24916]

56 minutes ago, Incredulity said:

A severance package does nothing in the instance of an employee making a move to a competitor.

As noted multiple times above most NC agreements are not enforceable.  It is one of the most misunderstood aspects of the work place. 

if the requirement was 100% comp for 1 year to make it enforceable, most companies would pass because they don't want the expense.  the impact would be a drastic decrease in those deceptive NC's and everyone would understand it.  At the high levels (C-suite), severance is ridiculous and everyone accepts the non-compete. bring the C-suite respect to the ordinary labor market and it would change drastically. that's my point.

6 minutes ago, TwiceHorn said:

A couple of things people forget with regard to the notion that CNCs are generally difficult to impossible to enforce.  The first is that it is very costly (not in the grand scheme of litigation, but to an average Joe) to defend CNC litigation.  The second is that 15.51(c) of the Business & Commerce Code allows a court to reform a CNC to make it enforceable and to enforce it, under certain circumstances.

So, the idea that you can just visit a lawyer for a couple hundred bucks and rest assured that your CNC problems are not problems, is pretty naive.

100% this.

[Nice Guy Eddie 13537]

I don't think anyone is arguing against a business sale including a non-compete. In that scenario, the seller is being compensated for that non-compete. Either through continued employment or the purchase price itself.

[wildcat09 29449]

49 minutes ago, Dahobbs said:

I'm serious. There is a power imbalance between a company and an employee. The current state is that companies will often put likely non-enforceable non-competes in their employment agreements. The employee has no real way to know they are non-enforceable, and even if he suspects they are, has to gamble that the company will not try to enforce if if it is breached. Not having lawyers, in this instance, just means that the sophisticated employer has even more power because it can still pursue legal remedies, whereas the employee has no means to arm himself in defense. 

Honestly though, you're all over the place in this thread. You recognize non-competes are generally not enforceable. You appear to recognize there is an imbalance of power of the employer/employee relationship. Yet you also hate the idea of making a clear ban on the thing that generally isn't enforceable and is used to abuse the employee and the labor market. Why? 

C'mon man, you know why.

[Captainant 27924]

4 hours ago, Bevo said:

I have a friend who wants to start his own practice in Cali. So I am considering purchasing the real estate and the equipment and bringing in staff for him. I'll own a portion of the practice and the real estate. So let's say he is good at his job and my efforts in advertising pay off as does my choice of staff. What is to stop him from opening a practice next door after his clientele are established? It seems like a pretty sweet deal for him. I assumed most of the risk. I absorbed most of the early losses. He can reap all the gains. I get the flipside completely, but to block him from being able to move right next door seems like a minimal inconvenience.

Sounds like you hate capitalism. Getting screwed is part of the game, dawg! Learn to love it, or you're a dirty commie pinko. Incredulity out front shoulda told ya

[Storm the Field 5304]

Aren't NC's a big deal in healthcare? I've seen plenty of anecdotes about hospitals or practice groups including a "can't provide medical services anywhere within a 50-mile radius for the next 2 years" clause in their employment contracts.

There was an Appeals Court case recently regarding 3 nurses that essentially would have had to leave the state entirely to find a job that wouldn't violate their NC if upheld.

https://www.nurse.com/blog/nurses-challenge-employers-noncompete-agreement/

 

[Storm the Field 5304]

12 hours ago, Parliament said:

Don't most no-competes come with a nice signing bonus?  I fail to see what the problem is here.

In states where NC's are enforceable, generally there has to have been some type of consideration in exchange for agreeing to the NC. And the consideration can't just be "you get to keep your job." Doesn't mean that companies don't continue to try and do exactly that though.

[TwiceHorn 31663]

11 minutes ago, Storm the Field said:

Aren't NC's a big deal in healthcare? I've seen plenty of anecdotes about hospitals or practice groups including a "can't provide medical services anywhere within a 50-mile radius for the next 2 years" clause in their employment contracts.

There was an Appeals Court case recently regarding 3 nurses that essentially would have had to leave the state entirely to find a job that wouldn't violate their NC if upheld.

https://www.nurse.com/blog/nurses-challenge-employers-noncompete-agreement/

 

I have dealt with one and the Texas statute regarding CNC has been amended to specifically address physicians..

I think they're bullshit, frankly, because few if any medical practices develop what I would consider protectable IP that is separable from a medical practitioner's skill and knowledge.

And then you add in that patients should have the right to choose their providers and the general ethics of restricting the availability of health care services and it's a nasty, nasty business.

One thing we have to consider a little bit is that one of the, if not THE, primary intellectual property aspects of a departing employee scenario is "customer lists."   A customer list qualifies as a trade secret, if maintained in secrecy as most are, and is specifically listed as a contemplated trade secret by the Restatement and the UTSA.  But in the grand scheme of things, a customer list is really sketchy in terms of being justifiably protected intellectual property, compared to say a chemical formula, as for Coke, or the "know how" behind a patented process or product.

So medical practice CNCs and related disputes are mostly about "customer lists," and, as mentioned, like law practice where there are some additional ethical and policy concerns about being proprietary about patients and clients, it's a pretty nasty mercantilism kind of thing.

Edited January 19, 2023 by TwiceHorn