No More Non-Competes?

The Federal Trade Commission took the extraordinary step last week of issuing a nationwide ban on non-competition agreements.  The implications of the FTC's actions are significant and worth a quick discussion.

First of all, there is serious doubt whether the Commission has the constitutional authority to rewrite law across the country in such a manner. There is no statute from Congress authorizing such a move; the Commission made this sweeping change based on its determination that non-compete agreements, which are matters of individual employment contracting, fall within the Commission's purview to regulate anticompetitive actions between businesses. Given the Supreme Court's recent and pronounced disfavor with federal executive actions that effectively usurp congressional power, I think it's unlikely that this action will survive even an initial court review. Although it is highly likely to be in effect at least through the presidential elections this fall, which I suppose is the actual goal of the Commission's action.

Secondly, the Commission's action removes an irreplaceable tool for employers to protect their investment in senior management employees. There are very few means for a company to prevent the loss of corporate and business expertise when a manager intimately familiar with product development, marketing demographics, sales strategy, and the like, departs for a competing business.  Often the business expertise of the departing manager developed over years with a particular company and is a direct product of the company's efforts to train and develop her talent. A transferring senior manager instantly makes the gaining company a formidable competitor, but without the time and investment made by the former employer.  

The Commission asserts that current trade secret law is sufficient to protect the losing company's interests.  Sometimes I wonder if the federal bureaucrats making these decisions spend any time working in the private sector. There is no way to extend trade secret or other intellectual property protection to the kind of long-term business practice expertise that non-competes, properly employed, are designed to protect.  The Commission's actions, like the actions of so many of our federal executive agencies, simply add to the burden and risk of hiring employees for the long term.