FTC Bans non compete clauses in contracts

A subject which crops up quite often on here. Obvs this only affects the US, but interesting none the less…

The change will force companies to reverse existing noncompete agreements and notify employees about the change. Existing noncompete agreements for senior executives can stay in place, but companies can’t enter or enforce new agreements. (The FTC defines senior executives as workers in “policy-making” decisions who earn more than $151,164 annually.)

https://www.theverge.com/2024/4/23/24138559/ftc-noncompete-agreement-ban

I suspect this just results in more company-company IP / confidentiality arguments and potentially employers shifting the consequences of those onto new employees – “you will indemnify us for any claim made against us by previous employers” or similar.

I don’t see it having much influence this side of the pond where employment arrangements are rather different.  I think everyone has believed these were unenforcible in many circumstances and not economically enforcible in even more, for quite some time.  The difference now is the FTC are stopping employers from putting “fear” clauses into contracts.  No doubt some US lawyers are already looking to craft new ways to restrict people!

This seems to help the little guy for once. The US has been handing out non-competes like sweeties – right down to utter nonsense like folk working in warehouses

I suspect this just results in more company-company IP / confidentiality arguments

Thats been suggested plus a growth in gardening leave.

I read about someone recently (UK) who’d got a contract with a “your next employer must pay us £25,000” clause in it.

They’d quit, and the ex-employer demanded the details of new employer to serve papers. Much hilarity all round, but the employee was very worried about the consequences of such a clause until their mind was put at rest.

It wouldn’t stop the new employer saying “WTF?!?!” though, I suppose.

I read about someone recently (UK) who’d got a contract with a “your next employer must pay us £25,000” clause in it.

Sounds unlikely as a contract can only bind the signees, not a new employer. Plus unreasonable terms are illegal, which this would be anyway…

US non-competes were already as unenforceable as UK ones, for the most part, (outside of senior exec positions) so this won’t change much in the US either

If they’re willing to add them to a contract and expect employees to sign that contract they may also be willing to cause employees and ex-employees grief whether they’re enforceable or not, in the knowledge that they probably won’t ever get punished for that grief. Unenforceable terms in employment contracts in the UK are in my experience both very common and a big red flag signalling a likelihood of drama when joining any company. Both companies with non-compete clauses in their contracts that I have worked for were pervaded by terrible attitudes to people extending from the top of the company and multiple instances of absurd drama including abrupt firings, inept failures at constructive dismissal, and more.

FuzzyWuzzy
Full Member

US non-competes were already as unenforceable as UK ones, for the most part, (outside of senior exec positions) so this won’t change much in the US either

Yup, it seems to be mostly about reducing the use of the unenforcable ones (because people took them seriously, both in companies that used them and companies that didn’t want to mess with them) and improving people’s understanding that they can be ignored). Culturally, US employees seem way more likely to fall for them, there’s a whole big culture of “if you signed it, it’s right and it’s wrong for you to even think of disputing it”, like it’s a core pillar of freedom to be able to sign bad deals or something.

I used to be a manager at a large UK based Multinat company with a very knowledgeable HR department that used to regularly get in employment law specialists to do training and briefings. So IANAL but relatively clued up (albeit few years ago)

These kind of non-compete clauses are perfectly legal [edit – sorry, should say in UK – what the Americans do / have newly legislated may be different] However, where they fall down is that if someone is signing away rights to work in certain industries / for certain other companies then they need to be fairly compensated for that. What that means in practise is rarely if ever tested (again, IANAL)  But as example.

Say your contract says you can’t work in the same industry / for X,Y,Z for 3 years and in return for that the company that has made you redundant / you have left pays you £1m – that would be legal and enforceable. The £1m more than compensates for you giving up your ability to earn a living for that period.

Simply ‘having been paid in the past’ isn’t adequate compensation, so a clause like the one above with no compensatory payment wouldn’t be.

Where’s the line between…..that’s the bit that is rarely if ever tested, and I suspect the kinds of people that get the first sort of agreement arrange them with full legal oversight and then sign NDAs over the terms and don’t break them. Would I agree never to work in my area again for £20k – probably not. £50k – maybe. £100k – yes.

Gardening leave is sort of the same, but in that case they just keep you employed and pay you that way, for doing what they want (nothing) but then you can’t have a job with a competitor or likely anyone else at the same time. Usually gardening leave is relatively short but the specialist did say there were cases of long periods being agreed (like a year). Only difference in reality is if you’re getting a payment to give up your rights, you can still work and earn outside of the restricted area (and probably tax too)

I’m curious about this. How would the old employer even know what the employee is doing or who they are working for after they’ve left?

(Assuming, of course, the new employee isn’t dumb enough to update their LinkedIn profile with the new employer or the new employer asking the old employer for references…)

Do HR departments routinely stalk ex-employees social media or follow them in the commute to check who they are now working for??

I think at a lower level they don’t, but once you get more senior then ‘everyone knows everyone’ and then you get into really senior where if someone’s genuinely breaking these rules at that level then it is worth a bit of checking up.

US non-competes were already as unenforceable as UK ones, for the most part, (outside of senior exec positions) so this won’t change much in the US either

It’ll reduce the number of employers taking ex-employees to court, because even if they lose, it costs everyone involved lots of money.

Do HR departments routinely stalk ex-employees social media or follow them in the commute to check who they are now working for??

They certainly stalk social media. Especially for those with access to high level corporate data.

I have a clause in my contract that says I can’t work for a competitor in an r+d role for 6 months.

A previous company didn’t do this but there was a 6 month notice period and people were put on gardening leave.

My wife had “no current client for 12mnths” as a limitation. Which, given the company was arguably most companies. She ignored it and kept a low profile. She had been made redundant, and there had been a legal conversation around this but they wouldn’t budge.

I do feel these should be banned as clauses. If someone wants to restrict the time frame in which I can move they should be obliged to pay me for the trouble.

I have a clause in my contract that says I can’t work for a competitor in an r+d role for 6 months.

As someone above has put far better than me, it has to be sufficiently compensated by the current employer. Otherwise it’s unfair restriction to your ability to work, and unenforceable.

Non-solicit is slightly more enforceable, it seems – but if your employer lays you off, my limited experience is it’s definitely fightable. Not doing any work for a current employer’s client seems like a very grey area; the employer doesn’t “own” the client, and if the client approaches you to do some work for them, you could fight it.

US non-competes were already as unenforceable as UK ones, for the most part, (outside of senior exec positions) so this won’t change much in the US either

The FTC disagrees!  It believes (at least US) employees can be made to believe they may be enforced (and there’s been a recent trend of people trying even in “low value” jobs), enough that it limits people changing jobs and therefore suppresses wages.  If you work in a US town with two big employers this is probably true.   In the litigious world of the USA and with job security being pretty poor there it may be more so than here.