The FTC and NLRB are Trying to Eliminate Non-compete Agreements
There appears to be a glimmer of hope for employees bound by strict contractual clauses, as the Federal Trade Commission has proposed a ban on non-compete agreements for employees. This shift in the FTC’s policy focus is currently receiving commentary from the public and we hope for more information in late Winter 2024.
Along with the FTC attack on non-competes, a recent memo from Jennifer Abruzzo, General Counsel member for the National Labor Relations Board, states that broad non-compete clauses “chill employees from exercising their rights under Section 7 of the National Labor Relations Act” and in turn is a violation of the NLRA. While Abruzzo outlines the unlawfulness that can exist by demanding non-competes, she does acknowledge the lawful use of narrowly adjusted non-compete clauses.
Abruzzo’s memo comes after the NLRB issued a complaint against Berry Green Management Inc., a Michigan cannabis processor, and their non-compete agreement. The NLRB alleged the company had imposed “overly broad and unlawful non-solicitation and non-compete agreements” by barring employees from seeking work at any Michigan cannabis company for two years. The company entered a private settlement with the employees and were required to rescind the existing non-compete restrictions.
The use of non-compete agreements has already been outlawed in California, Minnesota, North Dakota, and Oklahoma, but the recent developments in national agencies suggest these bans may expand soon!
Non-compete agreements bar an employee from seeking employment at a perceived competitor in the same field as their former employer and/or a competitor within a certain geographical scope. While this provides substantial protection for the employer, the employee is extremely limited in their options in the event of resigning or being terminated by the employer. This imbalance undermines the principle of a free employment market by compromising an employee’s freedom to leave unsuitable working conditions by threat of severe financial burdens.
Nevertheless, the U.S Government Accountability Office reports that 55% of employers utilize non-compete agreements, and 18% of U.S workers are currently tied to one. Despite common perceptions that these agreements are only entered into by high-wage workers, about 30% of all non-compete agreements apply to earners making less than $13 an hour. Low-wage workers may feel they have limited opportunities to negotiate different terms of employment and may not be able to join a union. Often tried in court, these agreements can be broken, but for low-wage workers, this may not be an option due to the fear of high costs of litigation.
The FTC proposal and NLRB memo advocate for a more fair and balanced relationship between employees and their employers by eliminating the underlying threat of a non-compete. The recent actions of these agencies are likely to be met with dispute by businesses that benefit from the disproportionate advantage they receive from non-compete clauses. This includes the U.S Chamber of Commerce who has threatened to sue if the proposal is enacted. The FTC proposal was submitted on January 5th and is open for comment until April 19th. A final decision on the proposal is expected next Spring.
Hurwitz Law has advocated for many employees harmed by non-compete agreements. Schedule a paid consultation to review the options, which includes potentially proactive ways to lessen the harm caused by restrictive covenants, including non-compete and non-solicitation agreements. If it is too late for a proactive approach because you have already received a Cease and Desist Letter or been served with a lawsuit alleging that you breached your employment agreement, Hurwitz Law PLLC can defend you, explain why your new job opportunity is not posing a competitive business threat to your former employer, and mitigate the harm to your career that is at risk if you do not retain counsel. Please email [email protected] for more information.