A Better Way to Limit the Overuse of Noncompete Agreements

Posted on August 30, 2024 in Consulting, Employment Litigation

On August 20, 2024, Federal Judge Ada Brown blocked the Federal Trade Commission’s rule barring non-competition agreements.  Judge Brown ruled that the FTC’s promulgation of the rule was an unlawful agency action because the FTC exceeded its statutory authority.  Simply put, Congress did not empower the FTC to regulate competition in the workplace.  It was no surprise the rule never went into effect. An appeal appears unlikely.

Congress has not yet imposed limits on workplace non-competition agreements.  But that might change.  On February 9, 2023, Senator Marco Rubio (R-FL) and Senator Margaret Wood Hassan (D-NH) sponsored a bill that would bar noncompete provisions for any person who is not exempt from overtime under the Fair Labor Standards Act. Under this proposed legislation, employers could impose noncompete agreements only on persons who meet an FLSA overtime exemption (e.g., an executive, professional, or outside salesperson).  The bill is sitting with the Senate Committee on Health, Education, Labor and Pensions.  The text of the bill can be found at:  https://www.congress.gov/bill/118th-congress/senate-bill/379/text.    Perhaps the death of the FTC ban on noncompete agreements might spur Congress to take action on this bill.

In the absence of federal action, some states have passed laws that bar (in whole or in part) noncompete clauses (e.g., California, Colorado, and Oklahoma). I think those jurisdictions have gone too far.  But the Rubio-Hassan Bill is a logical and straight-forward compromise.  Texas (and other states) should consider this approach if the federal government does not act.  For an extreme example of the opposite opinion recall how Jimmy Johns learned that sandwich makers should not be subjected to a noncompete. See https://www.cnbc.com/2016/06/22/jimmy-johns-drops-non-compete-clauses-following-settlement.html.

In my view, a rule against noncompete agreements for hourly, non-exempt workers is good for business.  It levels the playing field for employers seeking quality workers, stops employers from imposing unjust restrictions on employees, and might eliminate wasteful litigation.