Non-competes 2

[benny12]

What’s the current status of non-competes for people that do not have ownership in the company? Is there still a waiting period? Will/have business entities sue to stop the FTC ruling?

Has anyone left a job with a signed non-compete in the last couple months and gone to a competitor?

 

[phamENG]

It was challenged immediately. Today was a deadline in the US Chamber suit, but I can't find any recent updates.

 

[JohnRBaker]

Well we do have this announcement from the FTC in Aprl:

https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes

And then we have this news item from just this week:

https://ctnewsjunkie.com/2024/06/18...ment-rule-raises-floor-but-still-leaves-gaps/

John R. Baker, P.E. (ret)
Irvine, CA
Siemens PLM:

The secret of life is not finding someone to live with
It's finding someone you can't live without

 

[RVAmeche]

My (vague) understanding is that they were always kind of not enforceable to begin with? But most people would try to avoid the situation vs a lawsuit. It always seemed more like the dump trucks saying not responsible for broken windshields - its not true but they hope it discourages the behavior.

 

[Eng16080]

I thought they were recently banned per a ruling in April?

I had an 18 month non-compete with a former employer which stated that I could not work for that company's clients. I actually followed the non-compete and waited that time before starting my own company. To be fair, I had other ambitions that I wanted to pursue anyway, and I also had adequate savings to make that possible. If I was in a different position, I would have contacted a lawyer to weigh-in on the legality of the non-compete.

I would be surprised if many people actually follow non-competes. I would would also be surprised if anything usually comes of it. For small projects/clients, especially, it's probably not worth litigating over.

 

[phamENG]

They are enforceable, but it depends on where (what state), your job, and how the non-compete was written. If it says that you aren't allowed to practice engineering anywhere within 500 miles of their office for 5 years, it's probably not enforceable. If it says that you can't share certain business practices, proprietary methods/software, or marketing plans with a new employer, can't start/manage a firm within 100 miles for 2 years, and you can't solicit any of their clients for 3 years, then it may well be enforceable.

Best bet is to contact an attorney that specializes in non-competes and have them take a look. Even if it is enforceable, it'll be expensive to enforce it, and they usually have to prove that you did actual harm to them. (If a violation doesn't cause direct harm, the non-compete probably isn't enforceable.)

 

[phamENG]

thought they were recently banned per a ruling in April?

Nothing happens over night. The rule doesn't go into effect until September 4th, and then only if it survives the legal challenges around it.

 

[CWB1]

Hopefully the courts strike down the FTC's nonsense and protect a valuable bargaining tool for employees.

Noncompetes cannot prevent you from working for a "competitor," only from performing activities which are in direct competition to your former employer's business. One-trick engineers should be concerned for other reasons, but most of us just move into a non-competing product/service/role until the noncompete expires.

 

[phamENG]

CWB1 - can you expand on your opinion that it's a bargaining tool for employees?

 

[Brad221]

Last time I talked to our lawyer (updating a shareholders' agreement) they said we could keep it in (it was in the previous version) but they're basically unenforceable. They said non-compete's can be enforceable within narrow restrictions but even then it is expensive to enforce so usually just used as a disincentive.*

*I am not a lawyer, your mileage may vary, depends on state laws too, and other disclaimers

Edit to add: I think a non-compete among shareholders is probably tighter than one put on a typical employee.

 

[phamENG]

Brad221 - yes, and the new FTC rule recognizes that. Existing, executive level non-competes are not impacted by the rule. I guess they recognize that having a partner leave will necessarily gut a business, and many existing business are built on the non-compete between partners in many existing businesses.

CWB1 - I really am curious. I've never dealt with one and have never wanted to deal with one. I've only heard them derided as tools to repress and control employees. I'm interested to hear a new viewpoint on the topic.

 

[Brad221]

@phamENG Yes, I had seen that the ruling left those in place, which seems more fair to me as those are less one-sided and more of a mutual agreement. I agree that a key employee/shareholder/partner abruptly leaving for a competitor or dying, etc. can have serious ramifications for a company.

However, when I left my company it hardly caused a ripple. I had spent a fair amount of time transitioning my clients to the "next generation". When I left, my former partners encouraged me to open my own business despite the non-compete in our shareholder's agreement(because I still wanted to do a little consulting, not suddenly stop being an engineer), but we all knew I wouldn't be directly competing with them. As a one-man shop, I can't take on the types of projects they do. I still work for some of the same clients, but on their small jobs that are profitable for me (a guy with little overhead) but not for them (who can do projects for 10x the fee). The small jobs I'm doing are just distractions for them, but they would often take them to keep the clients from going elsewhere.

Which brings me to my tangent: I'm a big supporter of mentoring the younger engineers who work for you. When I started my career, I had a senior engineer who would check in multiple times if he was on a long weekend, vacation, etc. It was slightly insulting because it implied he didn't trust me to be able to handle things. When I started my own company, I always felt that if I needed to check in when I was away, it meant that I hadn't mentored the younger engineers adequately. They should be able to handle any issues that came up. Certainly there are unusual situations that arise (and I made sure they knew they could contact me if they did) but I would be a little disappointed that I hadn't taught them enough if they needed my help while I was gone for a week or two (unless it was one of those unusual circumstances).

 

[hawkaz]

Just a note: Non-Competes and Non-Solisitation agreements are two different things.

Non-competes generally restrict someone from getting another job in the same field- this is what the government has concerns with.
Non-solicitations indicate that you won't pursue company clients for a period of time. My lawyer seems to think that these will still be valid.

My hats off (and a star) to Eng16080. Even if some aspects may be deemed unenforceable, if we sign an agreement, the ethical thing is to live up to it (enforceable or not)

 

[CWB1]

Noncompetes are like any other condition of employment. As the number/impact of conditions increases the population of potential employees willing/able to tolerate them decreases, so employers have to either pay more or accept lower-quality employees. In the auto industry noncompetes, international travel/assignments/meetings, security clearances, 2nd/3rd shift work, 60+/week, and other conditions (or lack thereof) can have a big impact on your paycheck.

The other bit worth noting is that some companies push noncompetes at the exit interview rather than upfront while onboarding, which may be an argument for a larger severance (layoffs) or any severance (resignation). I've signed them at both ends and can attest to the later - When I resigned my last employer tried fast-talking me into a noncompete without severance, but eventually paid.

 

[JohnRBaker]

You could almost say the same for patent agreements. Professionally, I've really only worked for two companies, and in both cases I had to sign a patent agreement, but never a non-compete (perhaps there was fine print in the employment agreement, but no one ever made a big deal about nor did ever hear anyone complaining about it). At least at my last job (35 years), being it was working for a software company, they tended to be a bit incestuous anyway, people moving from one company to another. And the first 11 of those years it was part of an aerospace company where a lot of the engineers, particularly those working on defense projects, many of them tended to go where the contracts were.

John R. Baker, P.E. (ret)
Irvine, CA
Siemens PLM:

The secret of life is not finding someone to live with
It's finding someone you can't live without

 

[benny12]

https://thehill.com/business/4837806-ftc-noncompete-ban-blocked/amp/

Looks like the ban will not go into affect. Here comes the litigation.

 

[AZPete]

A non-compete agreement is a de facto agreement to price fix wherein the price that the signatory pledges is infinite; i.e., excessive to the point of starving sales.

Conspiring to fix prices IS explicitly illegal.

Call it what you want--right to contract, etc. What it amounts to is an agreement to restrict the available market of suppliers.

 

[geotechguy1]

Realistically unless you are in a position to change the outcome of a contract award or draw away clients worth hundreds of millions of fees, would anyone actually bother trying to enforce a non-compete other than using it as a threat? Even then people talk, reviews exist, company is just going to get a reputation for using threats if they run around trying to enforce non-competes over small sums of money.

 

[JohnRBaker]

It appears that the court has halted the enforcement of the recent FTC rule involving non-compete agreements:

District Court in Texas Sets Aside FTC Non-Compete Rule

https://www.hklaw.com/en/insights/p...ourt-in-texas-sets-aside-ftc-non-compete-rule

An excerpt from the above item:

In Ryan LLC v. Federal Trade Commission, the U.S. District Court for the Northern District of Texas on Aug. 20, 2024, set aside the Federal Trade Commission's (FTC) Non-Compete Rule, as promulgated in 16 C.F.R. § 910.1-6 (Rule). The court held the FTC exceeded its authority and that the Rule was arbitrary and capricious. The Rule, which purported to prohibit nearly all employee non-compete agreements on the basis that such agreements are "unfair methods of competition," was set to take effect on Sept. 4, 2024. The court's holding is not limited to the plaintiffs in the case and, instead, sets aside the Rule, blocking the enforcement of the Rule, nationwide, for all employers.

Note that this particular court in Northern Texas is a favorite for cases like this, even when neither side resides in Texas. It's because it's the most conservative district court in the country and it prides itself in siding with big corporations or right-wing groups. BTW, this is another case coming out of the recent Supreme Court Chevron ruling, which could basically shutdown most all federal regulatory agencies, denying them the ability to protect citizens from large corporations, among other things.

John R. Baker, P.E. (ret)
Irvine, CA
Siemens PLM:

The secret of life is not finding someone to live with
It's finding someone you can't live without