KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
You can read all of our articles on our website. Having trouble getting our emails? Change your spam controls and whitelist ken@kirschenbaumesq.com
******************************
What’s up with the FTC ban on non-compete agreements
June 28, 2024
**********************
What’s up with the FTC ban on non-compete agreements
**********************
What is going on with the FTC non-compete ban? Should you delete non-competes from your contracting process, particularly the Employment Agreement?
The short answer is, we don't know yet, but, I not believe 3 individuals will be effective in changing decades of jurisprudence by their vote, so don't change your contracts yet. We are watching closely and will share a follow up email of challenger status. Prior to, however, the below is a summary prepared by K&K’s Employment Department regarding the FTC ruling and background in case you are not up to speed with this issue.
FINAL RULE.
On April 24, 2024, the Federal Trade Commission (“FTC”) voted 3-2 in favor of enacting Parts 910.1– 910.6 (the “Final Rule”), which bans “most employers” from using non-compete agreements in an employment relationship, with limited exceptions. A “Non-Compete Clause” is any term that functions to prohibit or prevent a “worker” from seeking or accepting work with a different entity where such work would begin at the conclusion of the employment. The FTC defines “worker” broadly, as any person who works or previously worked, whether paid or unpaid, and without regard to the worker’s title or status under any state or federal laws. Such clauses also apply to prohibiting business operations after conclusion of the employment. The FTC determined that there are other less restrictive alternatives for protecting human capital investments than non-competes (such as fixed-duration contracts and competing on the merits through better pay, benefits, and working conditions).
Result. The FTC voted 3-2 in favor of banning “most employers” from using non-compete agreements in an employment relationship with certain exceptions. The 3 democratic commissioners on the board voted for approval while the 2 new republican commissioners dissented.
Exceptions
Senior Executive Exceptions. The Final Rule applies retroactively to workers who are not classified as a “senior executive.” Under the Final Rule, existing non-competes for senior executives can remain in force. Employers, however, are prohibited from entering into or enforcing new non-competes with senior executives. The Final Rule defines a senior executive as those in a “policy-making position” and earning more than $151,164 annually from that employer. The FTC notes senior executives represent less than 0.75% of the workforce. Therefore, according to the FTC a physician who runs an internal medical practice that is part of a hospital system, nor the head of a hospital’s surgery practice fall under the “senior executive” definition, so long as these physicians are decisions makers only for their particular division.
Nonprofit Exception. The ban does not apply to nonprofits including many of the country’s healthcare provider organizations due to the limitations of the FTC’s jurisdiction. Commissioner Rebecca Slaughter acknowledged that the FTC’s rulemaking record included “powerful stories from healthcare workers who are employed by nonprofits, and I've heard non-competes hurt patients and providers.” She said she doesn’t believe “there’s a good justification for them to be excluded from this rule” but noted that the FTC’s jurisdiction is limited under statute to for-profit entities.
Other Exceptions. Exceptions to the Final Rule include: (a) bona fide sales of business; (b) existing causes of action; and (c) presenting a claim in good faith that § 910 is inapplicable. Non-competes are enforceable if entered into by a person pursuant to a “bona fide sale of a business entity, of the per-son’s ownership interest in a business entity, or of all or substantially all of a business entity’s operating assets.” Physicians should be keenly aware of this exception and understand that non-competes are enforceable if arising out of a sale of a medical practice, ambulatory surgery center (or any other entity), or a physician’s ownership interest in such entity.
c. Required Notice. Employers will have to provide “clear and conspicuous” notice to workers bound to an existing non-compete that the non-compete agreement will not be enforced against them in the future. The FTC has included model language in the Final Rule that employers can use to communicate to workers. The Final Rule requires employers to provide notice by the effective date to each employee subject to an existing non-compete agreement. Such notice must advise that the existing clause is an unfair method of competition to enforce under the Final Rule and cannot be legally enforced against the worker. The Final Rule provides a template notice for employers.
Deadline and Support. The Final Rule will become effective 120 days (not 60 as previously contemplated) after publication in the Federal Register. The FTC said it received “overwhelming” support from the public, noting that over 25,000 of the 26,000-plus comments received voiced support for a comprehensive ban.
WHAT’S NEXT?
Challenging Road. The Final Rule was challenged the same day it was announced by the Chamber of Commerce in the U.S. District Court of Texas. The Final Rule will undoubtedly continue to be challenged on in federal court with various parties seeking immediate injunctive relief preventing the implementation of the Final Rule. The framework was established by the dissent’s arguments that the FTC exceeded its congressional authority by implementing the Final Rule.
Employers. This does not mean employers should immediately rip up their prior agreements but should be cognizant of the 120-day deadline and work collaboratively with their attorney(s) to begin to prepare applicable notices in accordance with the language provided to in the Final Rule those who are still subject to a non-compete but no longer employees and not considered senior executives. The FTC also cautioned the Final Rule could apply to non-solicitation agreements, confidentiality provisions, or any other provision that could operate as a non-compete agreement. Such agreements would function as a non-compete if “they function to prevent a worker from accepting other work or starting a business after their employment ends.” Employers should revisit such provisions to ensure they cannot be construed as a de facto non-compete.
Employees. Finally, any employees who anticipate becoming involved in the sale of a medical practice, ambulatory surgery center, or other business should also consult with their attorneys to avoid the pitfalls of the “bona fide sales of business” exception employees with existing non-competes applicable under the Final Rule, should consult with an attorney as to whether they could be considered a senior executive and would flag any contract between now and the effective date that may contain some form of non-compete, if changing employers. However, don’t expect this to be the end of this matter.
CONCLUSION
While some Federal Courts may provide injunctive relief by July 3rd (e.g., in Texas), no such assumption can be made until explicitly granted. Many expect the case to reach the U.S. Supreme Court. Therefore, it is recommended that employers plan as if the FTC rule is law, until otherwise noted. It is critical, for all employers, especially in healthcare, to the extent a non-compete is necessary for their practice and provisions such as a non-solicitation, could prohibit an individual from poaching business directly. However, patients are always free to seek treatment from any physician or provider, regardless of any non-compete or restrictive covenant.
Considering the nation-wide shortage of health care providers, it is difficult to see this causing any significant impact or long-term delay in hiring, or a mass exodus of current employees with the high interest rates and overall appetite for risk. Non-compete provisions have been a mainstay in the healthcare industry so navigating the next several months (if not years), as an employee, contractor or an employer will be a challenge.
Have a question for Jennifer Kirschenbaum? Email is best. You can reach her at Jennifer@Kirschenbaumesq.com
************************
STANDARD FORMS Alarm / Security / Fire and related Agreements
click here: www.alarmcontracts.com
***************************
CONCIERGE LAWYER SERVICE PROGRAM FOR THE ALARM INDUSTRY - You can check out the program and sign up here: https://www.kirschenbaumesq.com/page/concierge or contact our Program Coordinator Stacy Spector, Esq at 516 747 6700 x 304.
***********************
ALARM ARTICLES: You can always read our Articles on our website at ww.kirschenbaumesq.com/page/alarm-articles updated daily ********************
THE ALARM EXCHANGE - the alarm industries leading classified and business exchange - updated daily
*************************
Wondering how much your alarm company is worth?
Click here: https://www.kirschenbaumesq.com/page/what-is-my-alarm-company-worth
******************************
Getting on our Email List / Email Articles archived:
Many of you are forwarding these emails to friends or asking that others be added to the list. Sign up for our daily newsletter here: Sign Up. You can read articles and order alarm contracts on our web site www.alarmcontracts.com
**************************
Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
www.KirschenbaumEsq.com
|
