Is the Decision to Ban Non-Competes Good or Bad?

Good morning, everybody. Welcome to the Overruled podcast, brought to you by the Scott Vicknair Law firm. This is David Vicknair along with my law partner Brad. Scott, how are you doing today, Brad? Doing well, good morning, everybody.

So, I’m going to start with my topic, Brad. Mine, for today is a very, big interest. A lot of people I know have gotten a lot of text messages and phone calls, believe it or not about it. It is pseudo-legal. It is this rule promulgated by the FTC, the Federal Trade Commission, which essentially voted three to two. This is a federal agency. That voted three to two to basically ban non-compete agreements across the country.

There was not a ton of debate, but essentially, I think the, the rule, and I’m looking at this article from the Investment News, is a lot of wealth firms that are preparing for this particular, rule change. And so as I mentioned, the FTC is a federal agency and the federal government, and they promulgated this vote, this rule. They’re banning nearly something like 30 million non-competes in different industries. Across or 30 million, employees across the United States are subject to non-competes, as what the FTC said. I don’t know that this rule is going to necessarily affect all 30 million, but there has obviously already been significant pushback. The next morning after the FTC ruled on this, the Chamber of Commerce, the US, the National Chamber of Commerce, filed a lawsuit to immediately challenge it and seek to overturn it.

And so, it’s a lot of the questions I got from people is like, Hey, Vic, does this mean my non-compete is no longer enforceable? Like, what does this mean? And just so our viewers know, can you maybe explain what a non-compete is and why businesses do this in the first place? And, you know, they are very popular. There’s over 30 million employees that have probably are subject to them. So this has pretty far-reaching implications. Won’t you give it a little explanation of what the non-compete is and how that plays out?

Yeah, that’s a good point. And I think at some point we’ll have a philosophical discussion about non-competes that Brad and I spoke before the show and I know we don’t agree on it. So it should get really interesting here. But a non-compete essentially when an employer has in their contract with you that you cannot go to a competing business. And they can delineate and spell out the type of businesses that you can’t compete against them in. And in Louisiana, we have a revised statute, it’s 23:361, I believe, which governs non-competes. They are very, very strictly construed, meaning courts are very hesitant to enforce them. And they look for reasons not to enforce them because it goes against the concept of like employees and each of us having our own skills and abilities being able to go across industries and in different businesses as we see fit to better ourselves, if we want to move jobs, move companies.

And so in Louisiana, there are limitations on them. They can only be for two years in time after you leave an employment position with a current company. And the non-compete, for example, has to clearly spell out the parishes and the limited geographic area that it is applicable to. And there’s even a further requirement, I’m not that I’m a non-compete expert. I just had so many friends ask me these things over the years that I’ve become one. That’s a further requirement that the company has to actually operate or do business in the parishes that they’re trying to restrict you from. So. And this is a vault over time. They used to be very broad and blanket non-compete agreements where you’d go to work for somebody and they’d say, look, if you leave our employment, you can’t go to one of our competitors and start doing the same thing for them. And they used to be not time restricted, not geographically restricted. So you’d see these non-compete clauses to the end of time, anywhere on the planet, basically. And over time, the courts have kind of eroded that. The legislatures have kind of eroded that. There’s always been a shift towards being more specific and cutting into them over time.

Yeah. This is kind of the final death nail to them, though. Well, with the FTC’s now come up and said, like, they just said, you know, you may restrict them from time and geographically in the state, but now we’re going to say they’re just completely unenforceable as a matter of law, which becomes very interesting. You know, we have our different opinions on this, but from an employer standpoint, you know, when they bring in certain types of people who have skill sets, they have to train these people. They have to spend a lot of time with them, doing things. And part of that trade-off since they’re going to have to teach them skills is they don’t want them taking that skill set and going somewhere else to their competition and using those skills elsewhere. So, from an employer standpoint, there is some value to that. But the big thing is that all of a sudden now, this just kind of clears the deck. The deck, and saying, they’re not enforceable at all. So what do these employers do? But let’s kind of back up a little bit. You know, this is the FTC. This is not the Congress. This is not our state legislature. This is an agency of the federal government coming out with a proclamation that they decided they’re going to affect contractual rights between individuals.

How do you see that playing out? Obviously, there’s going to be some constitutional challenges. There’s going to be some legal challenges to this. But, you know, how do they just show up one day and take a vote and say, Hey, we’re going to change the world? Yeah, that’s an interesting and complicated question. And first, I’ll just take a shot at you and say, of course, there’s some benefits to employers to have non-competes. I think non-competes are the most ridiculous thing ever, and they should not exist. But in any event, back to your original question. There is a doctrine of law known as the delegation and non-delegation doctrine, which essentially says, and this is federal law. When I talked about the non-compete statute earlier, we’re talking about state law. Which there’s sometimes conflict and then we go into the supremacy clause of the Constitution that federal law trumps state law. But in any event, there is this concept of the federal government can delegate certain lawmaking to agencies. Meaning Congress, the House and the Senate can pass law that the President can sign, which can tell the FTC or the Commerce Department or the State Department or different rule-making agencies, like, hey, you have authority to make rules and to enact law in these specific situations. And what’s kind of happened over the last couple of decades is that the agencies have kind of liked that power. Just like the president likes to sign all those executive orders. It’s gotten bigger and bigger and broader and broader than what Congress had specifically put in much of the legislation. And so there has definitely been a trend at the Supreme Court, the United States Supreme Court level, to restrict the non-delegation and delegation doctrines and the allowance of what the agencies have the authority to do. And they have very strictly read Congress’s law and limited them only to the things that Congress has allowed them to do. And in some situations, said Congress can’t delegate that. Like, you got elected, go make a law and do your job, be accountable to the people who elected you. That’s the way this whole system works. So that’s the first layer of it. And from my perspective, it’s not going to survive that. But even if it did, you know, you were mentioning to me before the show earlier, then we’re going to go into even more like a minutia, constitutional law, which is like the commerce clause and the dormat commerce clause and whether or not Congress and federal law can even trump state law in this particular issue. And whether, you know, this is truly a federal or a state issue.

And not to dig into the weeds and the constitutionality. It’s been a long time since I’ve been in law school. I even studied this stuff, but essentially, you know, the federal government can only pass laws and regulate certain areas of things. And basically there’s a commerce clause and the constitution. And that has basically opened the door for the federal government to regulate all kinds of things in our lives. And the concept they’ve used is that if it affects commerce between two different states, then we get to regulate it. So then the question becomes, is can they regulate things within just a state like in Louisiana? If I, you and I work together and you work for me and I do a contract with you and it’s all within Louisiana, how does the federal government have authority to come in and tell us what we can do or can’t do on that? Because, you know, the thing is the commerce clause has really been expanded over time and over the years and a lot of legal challenges have been made to that. But that’s where we are today. But essentially there are all kinds of questions as far as whether this is going to stand up in court or not. But, you know, that’s going to be a fight that’s going to happen. Right now, it’s on the books, now it’s a law. Let’s kind of move into maybe what’s the implications for businesses now? The ones that are sitting out there with employment or contracts, maybe they’ve paid consideration and, you know, money to these people to have that non-compete clause in there. You know, what does that do to these businesses and their positions? These employees as far as moving around. What do you think about that as far as, I mean, they said 30 million people. That’s a pretty big chunk of the population that have these things in their contracts that all of a sudden are not there. There’s probably thousands, if not tens of thousands of lawsuits pending throughout the United States over these non-compete agreements because people always leave their employers. They go somewhere else and then somebody files a suit. This has a pretty reverberating effect throughout our businesses and, things that are currently going on. What are your thoughts on that as far as the implications? The immediate implications and from a business standpoint, if somebody’s out there listening, if you have these things in your contract, what do you do? What would you tell them? Are they protected? Do they just sit around and wait for the FTC to get overruled? If they’re hiring new people tomorrow, do they put them in their contracts and take their chances later? What do they do with these things?

My first response is, well. Should I help some people off? But, at the end of the day, my philosophical thought here is, if your business is so weak that it can’t survive. That it can’t survive. But you know, you’re the law, you’re a lawyer. What you’re a lawyer had on, you have a client who comes to you who really needs these things. Because maybe there’s a lot of trade secrets and trade information that’s really, really important to them. And you know, do you tell them to pump the brakes on training these people? Are not giving them that information? Maybe you really start compartmentalizing your business to keep any one particular person from having the information that’s necessary to compete against you. What do you tell them? Do you tell them to keep putting them in their contracts? I mean, because it we think it’s likely to get overruled. But I mean, it’s just that such a mess now for something that’s always been commonplace to all of a sudden be taking the rug pulled out from people who really will, potentially relied on these things.

Luckily, I’m not a contract lawyer anymore. I’m only doing personal injury things. So I don’t have to think about that. But my, if a business owner asks me, I would take the same philosophical position as what my advice would be to them. You need to focus on making your business so foolproof that if an incredible employee leaves for whatever particular reason, the business will find another talented person who can effectuate that job and still be a strong and growing business. And I think personally non-competes them from a mindset of restriction rather than abundance. Like I want to train everybody here in my business with everything that we do and give them every piece of knowledge that we have. And if they leave for whatever reason, I will do everything we can to keep them and say that they leave. But there is no way that the business is going to be detrimentally affected in the long run. And I’m not going to operate from a standpoint of how we train people and how we give them knowledge and make them better from a worry about like them leaving. And I feel like that’s a bad mental place to be as a business owner. And also a scary thing for a consumer if you think about the context of this. In Louisiana right now, irrespective of everything going on with the FTC, right now in Louisiana, if you’re a lawyer, you cannot have non-competes in your contract. It’s not effective because you can’t prohibit the practice of law. It’s a different levels and different issues that come into play with that. What about the situation where you have a small business owner? Well, but let me finish my thought because this is really, I’m really wrapping up. Because we have to move right into the philosophical side of this now. I know, but like the people need to know what the law is right now in Louisiana. So lawyers cannot have non-competes against public policy. Doctors can. Explain that to me. That is insanity. And I’ve never been able to logically explain that we should be able to allow health systems like Ochsner and LCM C, who are behemoths, restrict out good doctors from going other places, going into private practice and build these healthcare monopolies based on utilizing non-competes. And so, the reality of that has better lobbying. That’s right. That’s 100% right. We’ve talked about this. The reality of that is because there’s a lot of lawyers in the legislature and they see the public policy implications of how it’s not good for consumers to not be able to have lawyers who are mobile. And the same, and the doctors don’t have good lobbyists. And they don’t, and, you know, Ochsner and LCM C and all these well-off health systems have big, big lobbyists who can influence law. And so what I would tell a business owner is, look, the FTC rule is probably going to be unconstitutional. And it’s also probably questionable whether or not the federal government can do this and regulate this. Okay. Aside from all that, the trend is going against non-competing public. Well, that’s what we talked about at the beginning of the show. It’s always been sliding in that direction. But you mean I have worked with a lot of businesses, small businesses over my career. And, you know, a lot of the common fear when I’ve drafted these things for people to put in their employment contracts is, you know, they come to me and Brad, what do we do? We have key employees. We want to bring these people in, but I don’t want to train them and show them, you know, how everything operates and runs and give them the keys to the castle. And then the next week they decide to move next door and the suite next to me and open up a competing business and take everything that I just taught them and after they saw what was going on and compete directly with me and put me out of business. You know, it’s, it’s their fear is protecting their livelihood, protecting their family, protecting the things that they’ve built over all these years. It is a real fear. And I’ve sat with these people at these tables to discuss these things before. And that’s why they’ve gone into drafting these non-compete agreements and why they include them. That’s why 30 million employees out there potentially have these things in place. You know, for somebody sitting in that seat who has a small business, who is worried about these kinds of things, this is very scary. Because now they have a bunch of people inside of their office all of a sudden that can basically bankrupt them. Over, overnight by just opening up and competing next door. And look, I’m a free enterprise type of person. I’m always, you know, I think competition is good and healthy, but at some point these employers are, you know, what they’ve built around and what they’ve hired on and what they’ve trained on and the they took a measured risk in giving people information and how things work. Then all of a sudden, now that bargain’s been completely shifted for them. Had they known this was going to happen, was going in this direction, they may not have made those decisions in those key employee positions before or let them do the things they do. They always had at least two years of protection in place before as far as our states concerned. But you mean, you just completely pulled the rugs out from underneath them. And unfortunately, it does act as somewhat of a glue or a sticky thing for employees to stay with their employer because, you know, if I leave, I can’t do what I’m doing right now, somewhere else. I can’t open up my own shop for at least two years. There’s at least a cooling off period to give that employer some protection, some time to, you know, to preclude that person from directly trying to put them out of business. Look, I understand the fear. As somebody who has along with you, you know, millions of dollars at risk in this law firm. At any given time, like I get it. I do, truly. But there are other barriers to entry and that, you know, it’s a nuanced discussion, right? There are barriers of entry for another for an employee. Like let’s say you are a woodworking company. Like it takes a lot of time to build up capital to be able to do different things, buy nicer equipment, build out a shop, have a facility, be able to afford marketing, be able to do like that kind of stuff doesn’t just happen overnight unless somebody just comes and gives you a bunch of money to do it. Yeah, for businesses with a lot of infrastructure, but, you know, a lot of businesses these days, they’re more, you know, they’re tech oriented. A lot of stuff they do and they work with, they all exist on computers. Today, more than any time before in our history, it’s very easy for somebody to create a business tomorrow. Because there’s so many businesses that operate on very little capital and investment that’s needed because they’re more tech oriented. And that’s the ones that I mean, these people that do very technical type stuff and sales type stuff. Those are the clients I’ve had before that were most worried about this stuff. You know, when somebody comes in, sees their book of business, they don’t want to take the book of business. I mean, I get it. That’s scary. Well, and the other side of it too, though, the other barrier of entry is not just capital for competition, which is a barrier to entry and competition. But the other one is, you know, like a lot of this stuff when you get into technical things, there’s patents, there’s trademarks, there’s different ways to protect intellectual property and to stop theft of intellectual property. So as far as I understand it, this is not saying like, Hey, and that’s a very good question because the article I read and all the stuff I read about it, I didn’t get into like non-solicitation. And taking customer list because that’s a different element of non-competes. It’s not just like going to a competitor. I assume that’s included. I haven’t read the legislation, but you know, usually anything we have with non-compete, non-solicitation, it’s usually right in there with it as far as when they’re restricting it or kind of putting parameters and definitions on it. So yeah. I feel like an idiot because I should have researched that because like, another piece of this, right, is taking customer lists. Yeah. There’s three parts. There’s the non-compete. There is the non-solicitation as far as taking the customers or solicit directly soliciting the customers. And the third part, which you just brought up, which, you know, for a lot of listeners who have small businesses, you know, as far as intellectual property rights, trademarks and stuff like that or processes that have been patented and things like that. If you have not done those things, if you’ve not explored those particular issues, that might be your last line of defense as far as protecting yourself from somebody leaving your employment and directly competing with you. You may need to seriously look at what’s actually protectable from an intellectual property standpoint. It’s not protectable just because you invented it. You have to go through legal steps to protect yourself. But, it’s something worth exploring now that now that this part’s being eroded somewhat. I didn’t read anything, at least in this article, and it outlined it fairly well about non-solicitation agreements being affected, which are probably to employers, more important in my opinion than non-competes. Because non-solicitation says, Hey, you can’t take our customer list and you can’t solicit our customers for a certain period of time and these areas. And so to me, that’s a bigger threat to industry based companies. Absolutely. Because that’s the most common thing. You have somebody who’s working these accounts who knows the clients, knows the customers. And then they leave your employment and then they go somewhere else and they call the guy saying, Hey, look, I just left. I’m down the street now. Why don’t you move your, your account with us? You know, that’s, that’s an immediate threat to a business for sure. But it’ll be interesting to see and maybe we have to do a little follow-up on that to see if solicitation is, baked into this rule. I would assume it probably has. Yeah. I’m a business, I’m calling my lawyer or a non-compete lawyer and saying, how does this affect me? Like, does this, am I in the piece of industry that this, through the supremacy clause would trump and make my non-competing Louisiana no longer effective? How does this affect non-solicitation that I have in my agreements? Like, is my, is this, is this silent to non-solicitation? So my customer list and my clients are still protected? And then third, what other intellectual property rights do I have that I haven’t exercised that I have to worry about? That’s what I would say. I went a long way around there getting there and ranting about non-compete agreements. Except, guys, and again, this is not an area we practice in, but it’s just something that came to mind. You know, you may need to go back and look at all your employment contracts. Because just because this provision is in, if this provision is in your contracts and it’s deemed unenforceable, there’s a concept of what’s called a savings clause in contracts. And, you know, the idea being is if one, if one part of your contract is unenforceable, it may affect the enforceability of everything else, including other provisions in your contract. That’s right. I hadn’t thought about that. So this might be a little poison pill that actually kills your whole employment contract. So you need to go back and maybe revise those things to make sure there is a savings clause in those things. This creates a mess. And what I would tell people out there who’s listening, if you have employees, if you have, if you’re an employee or an employer, and you have employment contracts of any sort, you need to go back and pull these things out and look at them. See if there’s a non-compete agreement in there and how that’s going to affect you and the interim while, you know, these laws are being challenged. They’re the current law. So, you know, if people file on these things now and then later on it gets overturned, I’m not sure how that’s going to play out. It’s kind of a mess. And I don’t know if there was a, a grandfathering in on these things, if it was just moving forward. There’s a lot of questions, a lot of potential problems, a lot of issues. But it’s one of those things, it’s there, we have to deal with it. You need to talk to lawyers or whoever you’re going to get advice from and see how it affects you. Probably sooner rather than later. Well, let’s just say it’s a 570 page rule that was promulgated. I did not read 570 pages of the rule. I do not practice non-compete law. Nor did probably the people who voted on it. We have no non-competes there here. Come work for us. That’s what I say. So, but yeah. That’s going to be interesting to see how it shakes out, Brad. Like I said, I’ve been, I’m following it personally for the, the constitutional law interest of my own intellectual curiosity. And seeing how this shakes out because it’s going to end up at the court of federal court of appeals and or at the US Supreme Court. And have really interesting constitutional law issues that like, only maybe 5,000 people in America really care about. Or even are interested in. And but the practical fallout is going to be interesting. Public sentiment is definitely shifting away from them. So it’s going to be interesting to watch the whole thing and see how it plays out. And look, you know, every, I always say this and you’ve probably heard me say it a hundred times. You know, everything in the world’s basically called, it’s the pendulum theory. You know, we swing from one extreme to the other extreme. And, you know, we’re going one direction with this. 20 years from now, we may be swinging in the other direction where everybody wants to lock up employees and, you know, keep them glued to their desk. You know, it comes and it goes, but this is the biggest shot across the bow that we’ve had in quite some time. In Louisiana, the rulings and the courts have changed over the last 25, 20 years or so that lost change. But, we’ll see what happens. But for you guys out there who have contracts with these things in them, start taking a look at them. It’s probably advisable. All right. Yeah, you’re right. So it’s going to be a really interesting to see how this plays out. It’s been a fascinating discussion. Brad, please don’t take anything of it personally. We just don’t agree on non-competes. I know we’ve been, we’ve been close friends for, for 15 years now. So, maybe 13 years now. So I don’t think you’re going to take it personally. Of course not. It’s good to differ on some things. And we can’t use it in our business either. It is going to be a fascinating topic to watch. I’ve enjoyed discussing it. Thank you all for listening. This has been a great episode of the Overruled podcast, brought to you by the Scott Vicknair Law firm. As we go back into the heat season here in New Orleans, we are looking forward to some heat. And hurricane season right around the corner. And hurricane season right around the corner. Hopefully, God willing, we’ll have a clean one this year. We can’t wait to see you all next time. Thanks for listening. We really appreciate you listening. We’ll. Take care. Scott Vicknair, Injury Attorneys, we fight for the win.

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