FTC and federal intervention on non-competes may cause unnecessary hardship on companies reasonably trying to protect their assets

With the Federal Trade Commission and Congress poised to move forward with plans to create new rules regulating non-competes and other restrictive covenants in 2022, McDonald Hopkins Member Tim Lowe is speaking out on behalf of his clients and urging the FTC to avoid taking action that could leave companies unable to protect their business interests, and instead allow states to continue regulation of such matters.

Motivated by a desire to make sure McDonald Hopkins’ clients’ plans for protecting their confidential information and client relationships are not upended, Lowe, a Detroit-based member of McDonald Hopkins who has handled matters involving restrictive covenants for more than 16 years, voiced his concerns in a letter sent in response to a request for comment by the FTC.

“Different states, cities, and industries all have different expectations for post-employment conduct – and there are all sorts of different factors that go into who our clients hire, why they hire people, and what types of restrictions they put in place when they hire,” said Lowe. “For the most part, companies have been using various protections for years. I want to make sure   that their programs for protecting their various business interests don’t get completely upended over a false notion.”

In July 2021, President Joe Biden signed an “Executive Order on Promoting Competition in the American Economy,” tasking the FTC with developing rules that curtail the use of non-compete and other clauses or agreements that may unfairly limit worker mobility.”

One week later, U.S. Senators Marco Rubio and Maggie Hassan introduced the Freedom to Compete Act, designed to protect entry-level and low-wage workers from non-compete agreements limiting their employment and restrict their ability to negotiate higher wages and benefits.

According to Lowe, implementing rules on a national level may cause unnecessary hardship on companies that are reasonably trying to protect their business assets. While potentially egregious, enforcement of agreements against low-wage workers is unusual, and the states are capable of intervening in such cases.

“When the rare case of the use of non-compete agreements on very low-wage workers is magnified in the media, that tends to drive something like federal action,” said Lowe. “Federal action may not be necessary. It may be a solution to a problem that doesn’t really exist yet, and we don’t want our clients to get caught up and have to completely redo their plans for how they protect themselves.”

Regardless of what the federal government does, it is more important than ever for businesses to be proactive in reviewing the programs they have in place for protecting their interests. State laws are quickly changing and often prospective, so agreements that your company has in place before a change in law may not be impacted. If a new rule or law is set at a state or federal level, Lowe feels it is likely going to impact non-compete agreements and will be a matter of to what degree the agreements are curtailed - will it be a restriction on non- competes for low-wage workers or minimum-wage workers, or is it going to be something more than that?

“What you usually don’t see are attacks on other tools such as non-solicitation or confidentiality agreements,” said Lowe. “Whatever changes there are to the laws, businesses will want to make sure they can still enforce the agreements they have.”

For now, Lowe is hoping that his letter and those written by other concerned parties will have an impact on the FTC’s actions in 2022.

“There are certainly examples of bad actors using non-compete agreements to the detriment of their employees…but in general, companies are judicious in how they enforce a restricted covenant,” said Lowe. “The (fears) are really much ado about nothing.”