Category: Workforce Trends

FTC Non-Compete Ban Blocked

FTC’s Non-Compete Ban Blocked Nationwide

On August 20, 2024, the U.S. District Court for the Northern District of Texas enjoined the Federal Trade Commission’s (FTC) proposed non-compete ban. The decision, issued by U.S. District Court Judge Ada E. Brown, sets aside the FTC’s Non-Compete Rule.  So, the FTC cannot attempt to enforce the rule when it is scheduled to take effect on September 4, 2024.

The case is captioned as Ryan LLC (Plaintiff) and Chamber of Commerce of the United States of America, Business Roundtable, Texas Association of Business, and Longview Chamber of Commerce (Plaintiff-Intervenors) v. Federal Trade Commission, Civil Action No. 3:24-CV-00986-E.

Basis for Injunction

Judge Brown found two legal deficiencies in the promulgation of the FTC’s non-compete rule.

Exceeding Statutory Authority

The court found that the FTC exceeded its statutory authority under the Federal Trade Commission Act (FTC Act). The ruling emphasized that the FTC does not have the power to issue substantive rules that broadly prohibit non-compete agreements across all industries and employment levels. The FTC’s authority to prevent unfair methods of competition does not extend to the creation of sweeping, substantive regulations such as this Non-Compete Rule.

Arbitrary and Capricious Action

The court also determined that the FTC’s rule was arbitrary and capricious. The ruling criticized the FTC for imposing a one-size-fits-all ban on non-compete agreements without adequately considering less restrictive alternatives or providing a rational basis for the rule. Plus, the FTC’s reliance on certain studies was insufficient to justify such a broad prohibition. The judge noted that no state had enacted a rule as far-reaching as the FTC’s proposed regulation.

According to Judge Brown, “In sum, the Rule is based on inconsistent and flawed empirical evidence, fails to consider the positive benefits of non-compete agreements, and disregards the substantial body of evidence supporting these agreements.”

Status Quo Preserved

With the proposed non-compete ban blocked, employers may continue using non-competes to the extent allowed under applicable state law. Note that some states, such as California, already largely prohibit the enforcement of non-compete clauses.

While this ruling halts the FTC’s current efforts, it does not entirely close the door on federal regulation of non-competes. The FTC may attempt to appeal the decision (though the relevant appellate courts are not expected to reach a different conclusion). Alternatively, the FTC may revise its approach with a more limited non-compete ban. Some individual state legislatures will probably revisit potential non-compete bans as well.

 

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Youth Worker Bill of Rights

New York Youth Workers Bill of Rights

On May 29, 2024, New York Governor Kathy Hochul unveiled her anticipated Youth Workers Bill of Rights. Announced during her 2024 State of the State address, this initiative seeks to better inform young workers about their rights and protections in their workplaces. This initiative does not impose affirmative new obligations on employers. But that does not mean it won’t have serious consequences.

The Youth Workers Bill of Rights is available for download here.

Essential Protections for Young Workers

The Youth Workers Bill of Rights doesn’t create new legal protections. Instead, it’s an informational resource that outlines several key protections for young employees, including:

  • Minimum Wage Assurance: Ensuring that young workers are paid at least the state-mandated minimum wage.
  • Anti-Discrimination Measures: Creating a workplace free from discrimination and harassment.
  • Safe Working Conditions: Maintaining a safe and healthy work environment.
  • Protection Against Retaliation: Allowing young workers to file complaints without fear of reprisal.

Employers may already have existing notice requirements regarding these topics, such as through minimum wage and employment discrimination rights posters. But this new document will likely increase the chance that minors and their parents are aware of the legal parameters of the workplace.

Access and Distribution

The Youth Workers Bill of Rights will be provided with working papers that minors typically obtain through their schools. In addition to increasing the likelihood that employees know their rights, this initiative may also lead the Department of Labor to raise its expectations regarding employer compliance. Again, nothing has changed in the law. However, the DOL may exercise its enforcement discretion differently following efforts to increase knowledge and awareness of the legal requirements.

The Youth Worker Information Hub

The New York State Department of Labor has also introduced a Youth Worker Information Hub. A comprehensive educational resource, this hub provides detailed information on topics such as:

  • Permissible Working Hours: Guidelines on the allowed working hours for minors.
  • Minimum Wage Compliance: Ensuring adherence to wage laws.
  • Restricted Occupations: Identifying jobs that are prohibited for those under 18.

According to the State, this resource is part of a larger administrative effort to address rising child labor violations and ensure young workers are treated fairly and lawfully.

Building on Previous Efforts

These developments build on Governor Hochul’s 2023 measures to tackle child labor issues, including the creation of an interagency Child Labor Task Force and the Protect Youth Workers Pledge for businesses.

What To Do for Your Business

The Youth Workers Bill of Rights was strategically launched with summer approaching. With schools out, an influx of young people enter the workforce–many for the first time. Review of the Youth Workers Bill of Rights provides a good start for employers looking to avoid child labor violations–many of which are incredibly nuanced and non-obvious.

Here are some steps you may want to take in response to these new NYS initiatives:

  1. Educate Yourself: Ensure you and your team are familiar with the key protections and guidelines outlined in the Youth Workers Bill of Rights.
  2. Inform Your Employees: Distribute the Youth Workers Bill of Rights to your staff, particularly those involved in hiring and managing young workers.
  3. Utilize Available Resources: Make use of the Youth Worker Information Hub for guidance on compliance and best practices.
  4. Update Workplace Policies: Review and update your workplace policies to ensure they align with the applicable standards and avoid potential violations.

By taking these proactive steps, businesses can help protect young employees and themselves, while cultivating a positive, supportive work environment.

For more information and resources, visit the NYS Youth Worker Information Hub.

 

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Noncompete

FTC Attempts to End Noncompete Agreements

The Federal Trade Commission (FTC) has released its “final rule” banning noncompete agreements. This agency action marks a significant shift in the landscape of U.S. employment and competition law. This development, poised to reshape employer-employee dynamics and broader business practices, warrants close attention, especially given the potential legal battles and opposition it faces. If the rule takes effect in its current form, it will be a game-changer for numerous companies and will require immediate action by many.

The Rule and Its Rationale

For years, noncompete clauses have been standard in many industries, viewed as a means to protect businesses by restricting employees from joining competitors immediately after their tenure. However, under the new FTC rule, such agreements would be prohibited across all states, applying to employees, contractors, and some other workers. The FTC argues that noncompetes stifle wage growth, deter innovation, and limit job mobility, ultimately harming the economy. By eliminating these clauses, the FTC anticipates enhanced competition, increased entrepreneurship, and broader economic benefits, such as higher wages and lower healthcare costs.

Key Provisions of the Rule

  1. Effective Date: The rule is set to take effect on September 4, 2024, unless delayed by legal interventions.
  2. Exceptions: The rule permits some existing noncompetes for senior executives to remain in effect and allows them going forward in some scenarios involving the sale of a business.
  3. Scope of Restrictive Covenants: Other forms of restrictive covenants, like nonsolicitation and nondisclosure agreements, are not directly affected. The rule only restricts post-employment competition, meaning noncompetes that operate during employment are still permissible.

Employee Impact Notices

If the rule takes effect, all employers with existing noncompetes invalidated by the rule must notify affected workers that the noncompete will not be enforced. The FTC has even included a model notice for this purpose in the final rule.

Legal Landscape and Challenges

The FTC’s bold move has not gone unchallenged. Business entities, including prominent chambers of commerce and trade groups, argue that the FTC is overreaching its authority. Several lawsuits have already been filed, seeking to invalidate the rule on various grounds, which could delay or derail its implementation.

Compliance and Strategic Adjustments

Businesses need to proactively prepare for the potential enactment of this rule:

  • Tracking and Review: Employers should audit their current noncompete agreements and employment contracts to determine necessary revisions and notices.
  • Strategic Planning: Companies might need to recalibrate the terms of employment, particularly regarding compensation and other incentives, in response to the unenforceability of noncompetes.
  • Legal Consultation: Given the complexities and evolving nature of the rule, legal advice will be crucial in navigating compliance and leveraging permissible protective measures.

Enforcement and Penalties

The FTC will oversee the enforcement of this rule, treating violations as unfair competition practices subject to penalties. A good-faith defense is available for businesses that mistakenly, but reasonably, believe the rule does not apply to their actions. This defense may be limited to provisions that do not look like traditional noncompetes but are interpreted as having the same impermissible impact under the FTC rule.

Conclusion

As the legal battles unfold and the effective date approaches, businesses must stay informed and flexible, ready to adapt to a potentially transformed regulatory environment. The FTC’s noncompete ban could significantly alter how businesses operate and compete, making it essential for employers to rethink their strategies concerning workforce management and competitive practices.

 

A copy of the FTC noncompete rule, with accompanying information from the agency, is available here.

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