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The FTC’s proposed ban on non-competes may face strong opposition



The U.S. Federal Trade Commission earlier this month proposed a sweeping ban on noncompete clauses in employment contracts, but opponents say implementation could be delayed or blocked by litigation that charges the agency has overstepped its authority.

Others, however, welcomed the move, saying a ban would boost wages and promote economic development in states that don’t already have such regulations.

The insurance industry, which has seen an increase in employment-related disputes, particularly among brokers, in recent years, may be less affected than other businesses because companies in the sector typically rely on non-solicitation or non-disclosure agreements rather than blanket non-competes. However, the FTC proposal creates some uncertainty on the issue, experts say.

The 21

6-page proposal issued Jan. 5 would prohibit employers nationally from imposing noncompetes on their workers, regardless of their wage level, and would apply retroactively.

Non-exhaustive clauses vary, but they often prevent workers from working for a competing company while working for or after they leave an employer for a certain period or in a certain region.

The agency said that stopping non-competes could boost wages by nearly $300 billion a year and expand career opportunities for 30 million workers.

“Non-competes block workers from freely changing jobs, deprive them of higher wages and better working conditions, and rob companies of a talent pool they need to build and expand,” FTC Chairman Lina M. Khan said in a statement.

The proposal was approved 3-1 by the commission, with Christine M. Wilson, a Trump administration appointee, arguing that it “represents a radical departure from hundreds of years of legal precedent that uses a fact-specific inquiry into whether a non-compete clause is unreasonable in duration and scope.” “

The public can submit comments on the proposal until March 20.

A dozen states and the District of Columbia have enacted measures restricting non-competes, but they are generally less sweeping than the FTC proposal. Colorado’s law, for example, eliminates non-compete clauses for employees earning less than $101,250 a year.

The FTC proposal is a “general, not very nuanced solution to the non-compete issue,” and “there will be a lot of pushback from the business community about the need to have non-competitors, especially for senior workers who have access to trade secrets, said James M. Witz, a shareholder at Littler Mendelson PC in Chicago, who co-chairs the firm’s unfair competition and trade secrets practice group

Many observers say the FTC has overstepped its authority. It “doesn’t have the authority to regulate non-competitors at all, let alone ban them,” said Erik W. Weibust, a partner at Epstein Becker Green PC in Boston. “Non-competes have been regulated by the states for over 200 years, long before the FTC even existed.”

Some observers argue that the proposal is unnecessarily broad.

“Why do you need a non-compete for someone making $35,000 a year?” said Bennett Pine, a shareholder at Anderson Kill in New York. State legislation focuses on higher-paid employees where it makes more sense, he said.

The proposal also fails to balance employers’ desire to protect their training and proprietary information with employee mobility, said J. William Manuel, a partner with Bradley Arant Boult Cummings LLP in Jackson, Mississippi.

Amy Epstein Gluck, a partner with FisherBroyles LLP in Washington, said: “The FTC has never done anything like this.” She said she would not be surprised if a federal judge issues a nationwide injunction against its implementation.

However, others strongly support the FTC proposal.

Plaintiffs’ attorney David Fish, of Fish Potter Bolaños PC in Naperville, Illinois, said the proposal “makes a lot of sense, and it’s long overdue.”

Aside from the question of whether the agency has the authority to issue such a rule, it has “started a dialogue” on the issue of noncompetes, said Carrie Hoffman, a partner with Foley & Lardner LLP in Dallas.

California has a law similar to the FTC proposal, experts note. Christopher J. Banks, a partner with Crowell & Moring LLP in San Francisco, said, “There’s a lot of literature out here” that California has developed its robust economy in part because of this rule.

However, not everyone agrees with that assessment.

“Whether it’s been good for California business has been hotly contested and debated,” said Thomas E. Wallerstein, a partner with Venable LLP in San Francisco.

In recent years, there has been frequent litigation related to insurance brokers who left their employer to join a competitor or to start their own business.

Jeffrey A. Lehrer, a partner with Ford & Harrison LLP in Spartanburg, South Carolina, said traditional non-competes are rare in the insurance industry, which generally uses non-solicitation or confidentiality restrictions instead to discourage departing brokers from taking clients with them. one. Even if the FTC rule is approved, those arrangements will remain intact, he said.

Clifford R. Atlas, a principal at Jackson Lewis LLP in New York, sees the FTC rule as having an impact on the industry. “It makes employers, especially in the insurance world who use customer restrictions on a regular basis, wonder what the impact of this will ultimately be.”

Eric E. Packel, Kansas City, Missouri-based chairman of Polsinelli PC’s restrictive covenants and trade secrets practice, said that unless an employee is engaged in a function such as research and development, a preferred non-compete approach is for companies to ask their employees to sign non-solicitation agreements. This, he said, “will probably achieve their real goal” of preventing employees who have confidential information from going to a competitor and soliciting their clients.


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