US Chamber of Commerce to sue FTC for banning noncompetes in most jobs
- Reference: 1713976207
- News link: https://www.theregister.co.uk/2024/04/24/noncompetes_ban_ftc/
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A noncompete agreement typically blocks the employee who signed it from going to work for a rival or starting up a competing business of their own.
The Chamber of Commerce labeled the FTC's publication of its final rule yesterday as an "unlawful power grab." The feds claim the move will help usher in 8,500 extra new businesses and 17,000-29,000 more patents each year.
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It all kicked off [2]last year when America's federal employment regulator said it was worried about the unequal bargaining power between employers and workers, claiming that noncompete clauses were limiting employees' ability to practice their trade. It asked for Americans' opinions – and received more than 25,000 comments out of 26,000 that were in support of the ban.
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In the [5]final rule [PDF] the FTC determined that noncompetes and their enforcement were "an unfair method of competition," making them a violation of Section 5 of the FTC Act. [6]Section 5 [PDF] prohibits "unfair or deceptive acts or practices in or affecting commerce."
The move to abolish the clauses has its critics, unsurprisingly among the nation's employers. Claiming the matter should be confined to state law, the Chamber of Commerce's president and CEO, Suzanne P Clark, said in a [7]statement that "three unelected commissioners have unilaterally decided they have the authority to declare what's a legitimate business decision and what's not by moving to ban noncompete agreements in all sectors of the economy."
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Not everyone is affected by the ban under the rule, so while no new noncompetes may be drawn up, some still apply. The rule specifies that "senior executives," defined as those earning in excess of $151,164 annually in "policy-making positions," will still be bound by existing noncompete clauses. The FTC said "this subset of workers is less likely to be subject to the kind of acute, ongoing harms currently being suffered by other workers subject to existing noncompetes."
Prepare to be shocked: Employees hate this One Weird Clause [9]READ MORE
There have been interesting debates around noncompetes since the proposal was floated last year and yesterday's publication of the final rule. For example, noncompete agreements are typically deemed illegal under the California Business and Professions Code. But allegations as far back as [10]2013 reveal there is more to restraint of trade than a mere contractual clause.
For example, a court filing in an antitrust lawsuit that year revealed Apple CEO Steve Jobs once threatened the CEO of Palm with a patent lawsuit if he didn't stop hiring Apple employees. District Judge Lucy Koh allowed Edward Colligan's phone and email conversations with Jobs to go on the public record after Colligan claimed Jobs called him in 2007 suggesting they came to an arrangement about high-tech employees, agreeing not to hire them away from each other.
Noncompetes also became a topic du jour in Silicon Valley last year during Apple's trade secrets enforcement case against Rivos, a dispute it settled earlier this year. Apple had originally accused the tech startup of hiring away dozens of Apple engineers and using confidential info to develop rival SoCs.
In [11]counterfilings [PDF], Rivos then accused Apple of using the Defend Trade Secrets Act to circumvent noncompete regulations in California. It alleged that Apple was "improperly obstructing employee mobility," claiming it "forces its employees to sign contracts with provisions that run afoul of California law as a condition of their employment. These contracts purport to prohibit employees from retaining anything from their time at Apple – even general know-how that is not trade secret."
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Rivos and the ex-Apple employees who went to work for the startup claimed in a filing late last year that "even when Apple knows its employees are leaving to work somewhere that Apple (rightly or wrongly) perceives as a competitive threat, it does not consistently conduct exit interviews or give employees any meaningful instruction about what they should do with supposedly 'confidential' Apple material upon leaving. Whether by neglect or as part of a planned effort to generate a pretextual basis to sue the employees and their new employer for 'stealing' Apple material, Apple lets these employees walk out the door with material they may have inadvertently 'retained' simply by using Apple systems (such as iCloud or iMessage) that Apple effectively mandates they use as part of their work."
Rivos, Apple, and the former employees signed a [13]settlement agreement [PDF] in March.
[14]FYI anyone who codes outside work: GitHub has a contract to stop bosses snatching it all
[15]US Equal Employment agency says Workday AI hiring bias case should continue
[16]NTT boss takes early retirement to atone for data leak
[17]Alcatel owns US employee's thoughts
Back when the FTC was first floating the idea of abolishing noncompetes, Reg readers voted overwhelmingly that their chief concern when it came to employers' contractual clauses were those necessitating they hand over their intellectual property rights or a variation on that theme, à la Evan Brown. Poor old Brown [18]lost his case against Alcatel back in 2002, with a judge ruling the company owned rights to a software idea that existed entirely in the thoughts of its former employee.
Brown's "solution" was a process for "converting machine-executable binary code into high-level source code" – essentially adapting old software to new hardware through the use of a decompiler. Alcatel alleged Brown breached an invention disclosure contract that contained no exceptions, and the judge agreed, handing down a judgment holding the contract enforceable. But as the [19]Journal of Computer and Information Law pointed out, even after the court ordered Brown to disclose his "Solution," as counsel for the company admitted, the Solution was "woefully incomplete and inadequate by steps," making it ineligible for patent protection.
The company claimed at the time this was due to Brown's "willful noncompliance" when he had to travel to its offices to write down the code after the court's temporary injunction, but "Brown testified by affidavit that it would take an individual of 'extraordinary skill' to reduce the Solution to a working computer program and that a programmer of ordinary skill would have 'virtually no chance' of successfully producing a workable program based without extensive experimentation."
The FTC vote on abolishing noncompetes was passed 3:2, with Democrats supporting the ban and Republicans opposing.
"Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned," FTC chair Lina Khan said. "The FTC's final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market." ®
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[1] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/front&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2ZimA@3C@TenEiFcW2veXSgAAANQ&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[2] https://www.theregister.com/2023/02/03/poll_contract_clauses/
[3] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/front&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44ZimA@3C@TenEiFcW2veXSgAAANQ&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
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[5] https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete-rule.pdf
[6] https://www.federalreserve.gov/boarddocs/supmanual/cch/200806/ftca.pdf
[7] https://www.uschamber.com/finance/antitrust/u-s-chamber-to-sue-ftc-over-unlawful-power-grab-on-noncompete-agreements-ban
[8] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/front&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44ZimA@3C@TenEiFcW2veXSgAAANQ&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[9] https://www.theregister.com/2023/02/03/poll_contract_clauses/
[10] https://www.theregister.com/2013/01/23/jobs_threatened_palm/
[11] https://storage.courtlistener.com/recap/gov.uscourts.cand.395010/gov.uscourts.cand.395010.320.0.pdf
[12] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/front&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33ZimA@3C@TenEiFcW2veXSgAAANQ&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[13] https://storage.courtlistener.com/recap/gov.uscourts.cand.395010/gov.uscourts.cand.395010.400.0.pdf
[14] https://www.theregister.com/2017/03/21/github_worker_ip_contracts/
[15] https://www.theregister.com/2024/04/16/us_commission_allows_workday_ai/
[16] https://www.theregister.com/2024/03/01/ntt_boss_resigns_dataleak/
[17] https://www.theregister.com/2002/08/12/alcatel_owns_us_employees_thoughts/
[18] https://www.theregister.com/2002/08/12/alcatel_owns_us_employees_thoughts/
[19] https://repository.law.uic.edu/cgi/viewcontent.cgi?article=1118&context=jitpl
[20] https://whitepapers.theregister.com/
Didn't take long for the corporatists/capitalists to strike against this rule. They've been waiting.
And this is why they've fought so hard to have a Republican majority at the FTC.
This will definitely go all the way to the Supreme Court which has 6 out of 9 justices aligned with the Republicans and against the common people
Re: Didn't take long for the corporatists/capitalists to strike
Sadly I'll have to agree with everything you said. Somehow corporatists have the nerve to claim that this is 'good' for employees , the fact that you can't get a job in your own field if you actually have the NERVE to leave your current owner employer.
You know what the problem is? It isn't that the corporatists have the nerve, it's that 38% of the stupid, inbred, dumb-as-rocks electorate will be behind them lock, stock and barrel, saying "Thank you sir! May I have another!".
Re: Didn't take long for the corporatists/capitalists to strike
"Vaseline, no really that's too much, I'll just take it dry"
If companies had kept the use of non-compete clauses to only a few high-value employees, they might have avoided this, but once it spread down to grunt sandwich slappers this result was foretold.
I was going to say the same thing. The backlash was inevitable once it turned out Jimmy Johns was demanding noncompete agreements from people making minimum wage.
what's a legitimate business decision and what's not
This statement rather gives the game away - because legitimate business decisions should only ever apply to your own business. Once an employee has left your business, then their business should be none of your business.
Non compete clauses only benefit one side
My current employer tried to sneak a three year non-compete clause into my current contract when they sent me a new one to sign without mentioning that there were any differences from my current one except a new working location.
Thankfully, I read every word of anything that I'm expected to put my signature on. When questioned, the HR department tried to fob me off with a "it's a standard clause" lie. When I then pointed out to them that their suggestion was completely one sided and didn't follow accepted practice by including a 'paid gardening leave' clause to balance the restriction and that I would not, under any circumstances, sign the new contract as it currently stood, they eventually backed down.
What really gets my goat is that they actually tried to put one over on me. It still makes me angry to think about a major company trying to screw me like that.
Moral: Never trust your HR department! They are not ever acting in your best interests, they are a representative of the company and are only loyal to the company.
Second moral: If you sign something without reading and understanding every word, more fool you.
(posted as anonymous coward for obvious reasons)
Re: Non compete clauses only benefit one side
Always need to read the contract and always ask for things you are not comfortable with to be removed.
HR will be huffing and puffing, but that's the job they have to take advantage of the employees, but if you press hard enough they will always back down.
I never had a case where such clauses wouldn't be removed, but you need to be ready to walk away. It is also a good opportunity for getting a raise.
Since they are so worried you may end up with the competition, it's good to tell them you need % bump so you won't even think about it wink wink.
Pay bump is like a non-compete, just with a happy employee.
German rule: Non-compete is legal and enforceable but must get reasonable compensation. So your old company can force you to re-train as a burger flipper, but they have to pay the difference in salary + future raises if they want to enforce it.
"three unelected commissioners have unilaterally decided they have the authority to declare what's a legitimate business decision and what's not" -- Not unilaterally. This is the exact authority they were given when they were put into their positions. And they were put into their positions by elected officials, supposedly choosing commissioners who will do what is good for the country and its citizens. And given the ratio of "yes" to "no" comments, I think this is what citizens want. If the rich business owners couldn't flood the commentary with enough shills to even make it look evenly-divided, it's pretty clear.
When the "unelected commissioners" on the FTC or FCC and other agencies are Republicans and do what's good for business owners but bad for everybody else, they get cheered by business owners who don't mention that they were appointed by Republican Presidents. When they're Democrats and do something that takes away a tiny fraction of profits or control from employers or businesses, the words "unelected" and "liberals" get tossed about immediately as if it's a bad thing and negates their authority.
I think this rule was written extremely well. For probably 99% of jobs, non-competes are just punitive measures to punish anyone who thinks about looking for a job somewhere else instead of continuing to eat the shit sandwiches where you are now. It's already illegal for employees to take proprietary info to another company, so those concerns are already covered. For people who are involved in setting policy for a company, or someone where you literally created some new department at a company and are now going to do the same thing somewhere else... I can see there being a legitimate desire for a non-compete of at least a few months.
However, if companies are willing to pay gardening leave for the duration of the non-compete, I'd be willing to let them remain. We all know they won't, of course, but it seems only fair that people be compensated if you're going to prevent them from working.
How dare they...
put people before business!
It's the CoC's job to decide what a business can do, and as we there to look after businesses first and foremost, fuck the workers.
Chains
Company requiring a non-compete, should be paying the worker once they leave, the salary offered by the competition for as long as they need the worker to be chained.