Episode 612: What the FTC’s Non-Compete Ruling Means for You – Hurry Up and Wait

In this episode of What the Hell Just Happened?!, hosts Paul Edwards and Jennie McLaughlin delve into the recent FTC ruling on non-compete clauses. While this could herald significant changes for employment contracts nationwide, there’s no need to panic just yet. Paul and Jennie break down the details of the ruling, emphasizing that it won’t take effect immediately and discussing potential legal challenges that could delay its implementation. This episode is a must-listen for anyone concerned about the future of non-competes and seeking clarity amidst the unfolding legal landscape!

Transcript

Voice Over: You’re about to listen to an episode of What the Hell Just Happened. Join Paul Edwards and his guests as they discuss interesting HR topics and solve some of our listeners’ submitted questions. 

 

Paul: And occasionally I’ll go off HR topic and talk about whatever I want to talk about. Think barbecue. Space exploration. Technology. Money. Managing. Business. Things that interest all of us.

 

Voice Over: We get a lot of emails with questions. Stay tuned for details on how you can submit yours to the show. And now let’s get started. 

 

Paul: All right, everybody, thanks for joining the podcast today. Jennie and I are going to talk about the FTC’s ruling against non-competes and what that means for the community out there, or at least our community. I hope you guys enjoy it. This is kind of a hurry up and wait sort of situation that we have here. It’s not going to go into effect for a little while. So enjoy the podcast. Jennie and I will give you some details.

 

Paul: Hi, everybody. Jennie and I decided to just kind of knock out a quick podcast, we’re going to talk about this new regulation that’s coming down or has come down from the Federal Trade Commission on non-competes. And so we’re getting questions about it. I think, Jennie, everybody’s probably following it on the news. You want to tell them, you want to give em a little a quick synopsis of what they’ve decided at the FTC?

 

Jennie: Yeah. So the FTC, the Federal Trade Commission, they’ve been working on this for a while, so everyone knew it was coming. And they’ve passed a new regulation or rule that says federally…So for every state, it doesn’t matter who you are, that non-compete agreements are not enforceable. And that’s basically it. They say you can’t have them anymore.

The arguments are mostly to promote employees being able to work different places, not make it unfair against people trying to open businesses on their own. And the idea is this is going to allow so many more people to open their own business and allow employees to go to different places. And for some reason, they think it’s going to make employees be paid more, which I don’t really buy.

 

Paul: I don’t really understand that. So my first impression of the rule is it came out because, you know, first they published rules and I look back, so they had them out for public comment. And that’s what the government has to do when they want to publish a new rule. So I kind of look through them and saw that overwhelmingly the people who were commenting were people who were, who disfavor non-competes.

And I do want to recognize here that Jennie and I talked a little bit in my office before we came down here and you pointed something out that I didn’t really think about. That in rural areas where non-competes affect medical professionals that it can cause, it can impact the ability for medical care to be delivered. 

 

Jennie: Yeah, in so many states, the courts really have already just favored enforcing a non-compete against a medical provider. Because, you know, if you only got the one or a handful of doctors in the area and you know, the way to get another one out there is for one of them to hire an associate. You’re now saying that associate can’t open their own business. They’re kicked out, so effectively can make it so there’s less access to medical care in some areas which is a valid concern.

On the other hand, if you’re the doctor who’s made your life there and you’ve got all of these patients there who trust you, you know, you have an economic interest and a business interest in not giving away half that business to an associate that you’ve brought out there and trained. 

 

Paul: So that’s kind of the thing that I want to look at here that I find…and we find this all the time in people who are writing regulatory rules, who have been inside of the government. And I would submit that the people who wrote this rule and there was a group of people, five or ten people sitting around a desk have never owned a business. They really don’t understand what it takes to say, be a dentist or, you know, any doctor in a private practice, and to start with nothing. That’s how you start. Or you start with a practice that you purchased. You’ve paid a lot of money, you’ve paid a lot of money for what other people started with nothing and built up and the thing that the people built up is patients and goodwill. I don’t mean patience like waiting for something to happen.

 I mean patients, literally people who come in and pay the bills, and then you build your team up. And if you’re doing things well, your business grows and grows and your team grows with you and your obligations to your team grow. Because, you know, most people start off with, you know, we don’t offer insurance yet, we’re a startup, we’re just getting going. And then you get to offer insurance and you offer better insurance and then you offer these other benefits and all of that comes at a price. And all of it is driven by the customers, we’ll just call them  the customers. And so I think that business owners have an interest in saying, I actually want to bring somebody else in here, I want to grow it more.

But what I don’t want as a result of that is to create a competitor who can literally open up across the street from me and take the patients that they never would have had, had they not worked for me or take the customers that they never would have had access to so easily. And just take them across the street.

 

Jennie: And that’s why when writing any laws that affect employment or businesses, it’s really difficult to strike a balance because you can see both sides. I can see why non-competes can cause problems, but also they can be very necessary to protect a business. So how do you navigate, that is hard. I don’t think the solution is just to say, well, now you can’t have any. The states have already had rules about making them reasonable. 

 

Paul: And for having a reason. 

 

Jennie: You have to have a reason for having one. You can only have them with certain types of employees. You can’t make it so they’re kicked out of the state, you know, for ten years, nothing like that. Or you could have it, you know, buy outpatients and stuff like that.

And I think a lot of the reason why there was so much support in the comments for this is because people are thinking about really big corporations trying to prevent people from having jobs. Not the, you know, ten-employee dental practice that spent millions of dollars trying to build up from nothing. And, you know, those are different to me.

 

Paul: They are quite different. Yeah, they are quite different. So, you know where we are today. All right. And I feel good because I predicted this. I said it’s going to go into effect before the sun goes down that day. Somewhere in Texas, there’s going to be a lawsuit to stop this from going forward.

 

Jennie: And it happened! 

 

Paul: It happened. There’s a financial consulting group down there who started off. And then also, I think on the same day, I don’t know if they filed it in a district in Texas, but oh gosh, what are they called? The Chamber of Commerce? The U.S. Chamber of Commerce also filed, I think they filed a suit.

 

Jennie: Yeah. And because this rulemaking has been going on for a long time, everyone knew what was coming. So that lawsuit was already written. You know, it was just a matter of submitting it at the courthouse and which means we knew that was going to happen. You know, law firms knew this was going to happen.

And so if you’re a CEDR member, you haven’t heard from us, ‘Hey get rid of that non-compete’ because we don’t think this is going to go into effect when it’s supposed to go into effect. 

 

Paul: Yeah. So they publish and they give 180 days from the day they publish it goes, you know, and then it goes into effect.

Jennie: So if anyone’s panicking, please stop. 180 days, that’s six months. This law is not in effect yet. So you’ve got six months before the earliest anything could happen. But we don’t even anticipate you’re going to have to worry about it in six months. 

 

Paul: No, I think that they’re going to,one of those lawsuits. And I think there’s still more coming, somebody is going to get gain basically a stall. Injunctive relief. They’re going to say, can we hold this? 

 

Jennie: And it would… I would be shocked if they didn’t grant an injunction because to have this law go into effect, which will create so much of chaos, and so many changes while it’s being litigated. So imagine it goes into effect. You can no longer have non competes and then six months later, that’s not realistic. Let’s call it six years. But six months later the court resolves the case and says, ‘Yeah, that rulemaking was illegal so you can’t do it anymore’. So okay, so now the non-compete is legal or do I have to put in a new non-compete?

 

Paul: Yeah. 

 

Jennie: Yeah. And so no one wants that to happen and courts understand that that’s a problem. So typically when you’re filing a lawsuit saying that there’s a reason why this law can’t go forward if they think there’s any, you know, a minuscule amount of validity to the argument, they’re going to put the law on hold.

 

Paul: So for everybody who’s listening, you know, we could go down the rabbit hole here and talk about a lot of the provisions that they’re trying to put in. And but I don’t even know if they’re going to survive at all. I don’t I mean, you know, first it’s going to go where it’s going to go. It’s going to get challenged.

I think it’ll move through at least one or two courts. And then I think if it ends up in the Supreme Court, it doesn’t go anywhere. I don’t I don’t see this court that sitting there being in favor 

 

Jennie: No, because it’s so just favorable for businesses and also some of the arguments against it or even just saying the FTC doesn’t even have the authority to make a rule like this. So this is actually like a bigger deal because this case could come out really limiting what the FTC is allowed to do or identify what their authority is. 

 

Paul: So let’s leave everybody with this. Jennie I think that the FTC tried to write a district in as broad as they could, and they have flung it against the wall. And they’re hoping that somewhere along the way, as it slides down the wall, that parts of it stick. 

Jennie: Yeah. And that could happen. Parts of it could stick. There’s one part of the law I did want to bring up.. We didn’t talk about this, but only because I could see people thinking this is their saving grace.

 

Paul: Right. 

 

Jennie: The one very limited exception they put in where you can have a non-compete is if you already have an existing non-compete and you can’t make a new one. But if you have an existing non-compete with a quote, “senior executive”, that can remain in force. And so the reaction is, well, my manager, my associate doctor there said, okay, so the term senior executive is defined and I’m not going to get into it.

And if this goes into effect, that’ll be litigated. But there’s a salary threshold. They have to earn at least 150, 164. 

 

Paul: Yeah. I wonder I wonder why the 164 

 

Jennie: I don’t know. I don’t understand. But and so even if you have someone who makes that much money, they also have to be in a policymaking position. So this is someone who’s really like directing your business.  And so they’re really looking at high level executives that you may have hired and set their salary based on the fact that they can’t compete. And so, you know, a manager of a business, maybe. You know, an associate doctor, probably not. There’s going to be more to that. So I would just say for anyone, don’t assume that’s going to keep your non-compete valid. It’s probably not. 

 

Paul: All right. Right. So just sit tight, right?  

 

Jennie: Sit tight. If it goes into effect, you’ve got six months anyway, but it’s basically universally expected this is going to get a hold. 

 

Paul: All right. Okay. All right, Jennie, thanks for coming in and knocking that out with me.

 

Jennie: Thanks, Paul. 

Voice Over: Thanks for joining us for this week’s episode of What the Hell Just Happened. If you have an HR issue, question, or just want to add a comment about something Paul said record on your phone and send at podcast@WTHjusthappened.com. We might even ask if we can play it on the show. Don’t forget to like and subscribe and join us again next week.

May 12, 2024

Friendly Disclaimer: This information is general in nature and is not intended to provide legal advice or replace individual guidance about a specific issue with an attorney or HR expert. The information on this page is general human resources guidance based on applicable local, state and/or federal U.S. employment law that is believed to be current as of the date of publication. Note that CEDR is not a law firm, and as the law is always changing, you should consult with a qualified attorney or HR expert who is familiar with all of the facts of your situation before making a decision about any human resources or employment law matter.