In January, the Federal Trade Commission proposed a rule that might be a game changer for staff: US employers might be banned from imposing and enforcing noncompete clauses across the country.
The rule could retroactively invalidate existing noncompetes, too.
Roughly 30 million Americans are restrained by a noncompete clause, and attributable to the resulting decreased competition and lower wages, the FTC says the proposed rule may boost staff’ earnings between $250 billion and $296 billion annually.
What’s a noncompete clause?
“A noncompete clause seeks to guard an employer’s business interests (e.g., trade secrets, proprietary information, ‘know-how’ and investment into the person’s employment with that employer) by stopping the person from competing together with his or her employer some other place,” said Michael Schmidt, vice chair of the labor and employment department at Cozen O’Connor law firm on the World Trade Center.
Typically, noncompetes apply to full-time staff and restrict where they could immediately pursue future employment; competitors is perhaps mentioned by name, or by a timeframe and placement. Noncompetes may forbid soliciting their employees and clients and sharing confidential information.
Independent contractors, apprentices and interns often don’t see noncompete language of their contracts, even though it is determined by the employer.
Steven Mitchell Sack, employment attorney at his law office in Garden City, LI, and creator of “FIRED!: Protect Your Rights & Fight Back if You’re Terminated, Laid Off, Downsized, Restructured, Forced To Resign or Quit” (Legal Strategies Publications), said a clause may seem like this: “For a period of 1 yr following the termination of your employment for any reason, it’s agreed that you’re going to not contact, solicit, or be employed by any person, firm, or business inside a 50 mile radius of the Company to which you sold products of the Employer and is not going to induce, hire, solicit, or otherwise utilize the services of any worker currently employed by the Company.”
Who has them?
Noncompetes are more common for managerial and C-suite positions than staff and hourly roles.
“Low-level employees that would not have the power to use the employer’s goodwill with its customers or significantly impact other legitimate business interests of the employer mustn’t be asked to execute a noncompete,” said Kathleen M. Connelly, partner at Lindabury, McCormick, Estabrook & Cooper, PC, law firm in Westfield, NJ.
Noncompetes are more prevalent in certain roles, levels and industries like sales jobs where “the worker has developed a loyal client following while acting because the ‘face of the corporate’ and may readily move that business to a competitor,” said Connelly.
Noncompetes are also prevalent in technical and executive positions involved with confidential information, business plans and trade secrets.
Are they really enforceable and in that case, how?
They’re enforceable, and former employers can uncover violations through social media akin to LinkedIn, from mutual clients or current employees who’re in contact with the previous worker. Ramifications can include loss of recent employment and financial hardship.
To implement the noncompete, the unique employer sends a cease-and-desist letter to the previous worker and latest employer.
“If the matter just isn’t resolved at that level, a case is filed within the Supreme Court of the State of Recent York,” said Jonathan Bell, partner at Bell Law Group, PLLC, law firm, in Syosset, LI.
“Under Recent York law, to be upheld by a court, noncompete agreements must: not be greater than required to guard an employer’s legitimate business interests. Not impose an undue hardship on an worker. Not cause injury to the general public. Be reasonable in duration and geographic scope.”
Recent York courts typically uphold agreements of 1 yr and an inexpensive geographic area (25 miles of the employer’s business).
It gets trickier in case you’re working in one other state than your employer, like working in Brooklyn while your employer’s based in Chicago.
“The employer will put that into language — the law of Illinois will apply. Then, a person working remotely in Recent York speaks to a lawyer,” said Sack.
What would a latest law do?
“The FTC’s proposed rule as drafted would ban nearly all noncompetition clauses in employment agreements throughout the US,” said Kelly Magnus Purcaro, partner at law firm Greenspoon Marder, LLP, in Newark, NJ. “The proposed rule would each ban such agreements going forward in addition to retroactively invalidate existing noncompetition. The FTC proposal sweeps nationwide and across industries.”
When will it occur?
Don’t bank on it happening inside the following yr. The general public comment period on the proposed rule is open until March 10, meaning the general public can submit input online, by mail or in person at certain government locations.
“The FTC considers the comments and will amend or possibly withdraw the proposal based upon some,” said Purcaro. “The FTC review can lead to quite a lot of next steps which might impact timeline — an prolonged comment period, request for extra responses, undertaking to amend, etc.”
If the rule gets greenlit, it has to undergo an administrative evaluation and Congressional Review. It still will not be on the finish line.
“If this rule passes, it could be legally challenged as much as the US Supreme Court,” said Bell. “The argument against the rule by a litigant could also be that the FTC exceeded its authority under Supreme Court precedent.”
Within the meantime, how must you handle noncompetes? For now, it’s business as usual. If you happen to’re laid off, fastidiously read the separation agreement.
“Smart employees may try to barter that any time or geographic restrictions be cut (e.g., from two years to 6 months) and/or that you’re going to proceed to be paid a full salary throughout the period when your activities are restrained. This known as garden leave,” said Sack.
If you land a latest job, in case you ask to remove the clause from the employment contract, Sack warned you could risk not getting the job or turning off the employer. Negotiate as best you possibly can.
Sack said, “Never sign a contract with a restrictive covenant in case you may help it, but when you should, negotiate to receive higher terms within the job offer akin to a better salary, year-end bonus, more vacation time or other perks plus more severance after a layoff.”
