Topic: Week 5: Discussion: Non-Competition Agreements: Replies to 2 students
Prompt:
On July 9, 2021, President Biden signed an executive order supporting limitations on the use of non-compete clauses. Styled as “promoting competition,” the order encourages the Federal Trade Commission to act to limit employee non-compete clauses as well as any “other clauses or agreements that may unfairly limit worker mobility.” While this order doesn’t effectuate any immediate changes in the law, it comes after an FTC examination of non-competes last year and after the Obama administration issued similar criticisms of such clauses years ago. In the intervening time, several states have changed their laws on regulating them, and it remains to be seen how this most recent Order will impact the legal landscape.
Regulation of non-compete and other related clauses is not without criticism. It is unclear how the FTC may act in response to this order, and the scope of their power to regulate non-competes will certainly be the subject of litigation. The FTC may engage in rulemaking to restrict these clauses in response to the administration’s vow to ban them altogether, and it is unknown as to whether the agency will seek a total ban, or something more narrowly tailored as many states have enacted. In addition, as the language of the executive order is broader than just non-competes, the FTC may seek to regulate other contract provisions like non-solicitation, no-rehire, and other restrictive covenants. As such provisions affect over half of American businesses, this changing area of the law may have broad-ranging consequences for employers.
Do you think companies should be allowed to negotiate non-competition agreements? Why or why not?
Should the federal government dictate this area, or should it be up to individual states to legislate non-competition agreements under state law?
Student 1: I believe that consideration should be a key element to a non-compete agreement. If the employee is forced to sign an employment contract containing a non-compete provision without consideration, that should be problematic without either true consideration (such as higher pay, larger benefits, or for cause only termination) in favor of the employee or legitimate business reasons for same as further discussed below. Otherwise, employers would consistently seek to regulate and perhaps unfairly restrict an employee from earning a living in certain areas of the country and/or sectors of business.
Moreover, there needs to be a true protective purpose of the employer. If the employer is revealing confidential information (such as customer lists built over the course of many years) and trade secrets, then perhaps there is a genuine reason for this restriction to prevent employees from unfairly using certain confidential information and/or trade secrets to immediately compete against his or her former employer. Basically, I believe the restatement (second) of contracts generally provides a sensical test that should be applied in some way, shape, or form to non-competes in that the clause should not unreasonably restrain the trade, and that the need to protect the business is greater than the restraint on the employee.[1]
However, even against that backdrop, I think individual states should legislate non-competition agreements. These federal agencies have enough on their plate, and adding something that can be regulated by the states is probably best for these agencies to remain efficient with respect to its objectives. The Federal Trade Commission’s mission is to protect the public from deceptive or unfair business practices and from unfair methods of competition.[2]This is focused on protecting the consumer from deceitful and corrupt business practices. The FTC’s mission is legitimate purpose that has to do with protecting a public consumer that purchases goods or use services. Expanding that mission to protecting every employee in the country would seem to be stretching its resources way too thin and well beyond its original purpose. Thus, I am of the opinion that this type of regulation should be left up to the individual states to protect its employees.
Student 2: As a small business owner myself and presently a general license property and casualty agent, non-compete has come up for one of the last two agencies that I was a part of, and now I am part of an agency that had me sign a non-disclosure agreement. What is interesting is I previously did more personal lines, while presently I do commercial lines and the policies or procedures are different. With that said I do believe companies should be allowed to negotiate non-compete agreements. At times with non-compete agreements, the employee is restricted from competing with the business directly or indirectly. The thing about this, is some individuals work for an employer to gain insight and knowledge of that field so that they can proceed to excel in their careers. The marketplace, in general, is competitive, and depending on the area of study or job a person should be able to take what they have learned and move forward to create a better experience for themselves. At times jobs will tell a person that they have to wait 2 years or more to go into business related to where they were. This can feel restricting or limit a person from being able to feel as if they can become successful. There should be guidelines on what an employer may feel is direct competition. At times that employee could have the opportunity to be part of a different company that saw or heard about their work ethic, to give that employee a chance to move on for the better. What if that person was part of building or starting that company?
Overall it should be regulated by each state, but then also by each private or public company as well. The federal government shouldn’t have a say on how a non-compete should be structured especially considering that there is such a broad spectrum of companies in the US. States should simply have a guide if a non-compete goes sidewachoys to protect the parties involved.
