South Florida businesses play waiting game with new FTC ban on ‘noncompete’ agreements

There have been times when Michael Pappas, CEO  of The Keyes Co., the sprawling South Florida real estate firm, has wondered about the longevity of his broad roster of salespeople.

“We had thousands of agents,” he said, “and when I was younger I used to go to sleep and hope the next day they all showed up.”

Pappas spoke this past week in the context of a new federal ban on employee noncompete agreements imposed by the Federal Trade Commission, which says it acted to foster more job mobility among employees nationwide.

“We have employees that are management and in leadership that probably would be affected by that,” Pappas said in an interview with the South Florida Sun Sentinel. “But the independent contractors — we could never stop them and [the agreements] were never enforceable before.”

“We’ve got people who have been with us 20, 40, 50 years,” Pappas said. “We’ve got a lifetime of individuals.”

But what if someone wants to leave?

That’s what the FTC asserts it wants to make easier for workers with the rule that bars companies from restricting where an outbound employee may work when perceived greener pastures beckon.

What the rule would do

In a statement, the commission asserted its rule would:

• Negate existing noncompetes “for the vast majority of workers” as their agreements  “will no longer be enforceable after the rule’s effective date.”
• Preserve existing noncompetes for senior executives who make more than $151,164.
• Ban employers from entering into or attempting to enforce new agreements, “even if they involve senior executives.”
• Require employers “to provide notice to workers other than senior executives who are bound by an existing noncompete that they will not be enforcing any noncompetes against them.”

“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,” said FTC Chair Lina M. Khan in a  statement. “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.”

The commission asserted the rule would “generate over 8,500 new businesses each year, raise worker wages, lower health care costs, and boost innovation.”

It also predicted worker earnings would rise by $524 per year, and their health care costs would decline by up to $194 billion over the next decade. The rule would also generate an average increase of 17,000 to 29,000 more patents each year over the next 10 years, the agency contended.

“Noncompetes often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, being forced to relocate, being forced to leave the workforce altogether, or being forced to defend against expensive litigation,” the commission said. “An estimated 30 million workers — nearly one in five Americans — are subject to a noncompete.”

“The commission found that noncompetes tend to negatively affect competitive conditions in labor markets by inhibiting efficient matching between workers and employers,” the agency added, while “inhibiting new business formation.”

The agency said that businesses worried about losing trade secrets can rely on nondisclosure agreements “to protect proprietary and other sensitive information.”

The final rule will become effective 120 days after it is published in the Federal Register.

Delayed by lawsuit?

But several labor and employment lawyers interviewed by the South Florida Sun Sentinel noted it likely will be more than four months before the rule takes effect — if the courts uphold it.

“My experience has been that when something comes out there is an immediate challenge, and historically there is a stay,” said Michael Gore of the Jones Foster law firm in West Palm Beach.

Sure enough, the U.S. Chamber of Commerce and several other business groups in Texas fileed suit in a Texas federal court to block the action.

The suit alleges the FTC lacks the authority to implement such a rule, which the groups believe is too broad.

“The sheer economic and political significance of a nationwide noncompete ban demonstrates that this is a question for Congress to decide, rather than an agency,” the U.S. Chamber, which represents roughly 3 million companies, said in the lawsuit filed in the Eastern District of Texas.