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The demise of non-compete agreements – Twin Cities

Amy Lindgren

And another pillar falls. The past few years have been remarkable in terms of worker pushback on traditional employment practices. We’ve seen higher minimum wages, more remote work, an acceleration of family leave laws, increased unionization and now, the possible demise of non-compete agreements.

This time it’s the Federal Trade Commission giving the final push to the pillar. Acting on a directive from President Joe Biden, the FTC has proposed eliminating non-compete agreements from U.S. workplaces. We’re currently in the 60-day comment phase, giving the public opportunity to weigh in on the proposal.

Assuming it goes forward, nearly all employers, regardless of size or industry, will be covered by the mandate. As exceptions, banks, airlines, meatpackers and certain nonprofits are part of the odd but small assortment of organizations not covered by the FTC’s jurisdiction.

If you think this issue doesn’t involve you, you could be wrong. By some estimates, up to 45% of U.S. employees are directly covered under a non-compete or work in an industry where they are prevalent. Perhaps most surprising, as many as 25% of current non-competes are restricting workers in very low-level positions, including janitors and fast-food employees.

Wait, what? That’s right — employers such as Burger King and Jimmy John’s, two of the fast food companies that hit the news around 2014 on this issue — are so concerned their workers will tell competitors how to spread the mayo that they restrict their employees from taking jobs where that could happen.

Ridiculous? Of course. But this isn’t really about trade secrets. You can trust that the drive-through cashier doesn’t know any secret-sauce recipes. But these employees do know when the fast-food restaurant around the corner is paying better or has better management. A non-compete restricting their ability to work for a competitor helps ensure they don’t act on that knowledge.

Once you understand that most non-competes are about controlling the worker, not safeguarding proprietary trade information, the FTC’s proposal comes into clearer focus. Whether you make sandwiches for a living or perform brain surgery, why shouldn’t you be able to change jobs?

As it turns out, there are several arguments for such restrictions, at least for the brain surgeon. While fast food companies haven’t been very successful in defending the practice, organizations employing highly skilled professionals point to their investment in the worker as justification for restrictive employment contracts.

Imagine, for example, that a physician is hired by a rural hospital and is then promoted in a public relations campaign that includes billboards and radio ads. Next imagine this now well-known physician quitting after a few months to open an office down the street, taking current and potential patients to the new practice. Ouch. The hospital loses both the investment and the patients, and has to start over with a new neurologist — who could do the same thing.

Startup companies such as tech firms that train intensively, insurance brokers paying agents to build a client base, etc. — these are just a few of the businesses that will be scrambling if their non-compete clauses evaporate a few months from now.

Switching from stick to carrot in terms of employee retention is difficult enough; making the system hinge on goodwill could really be a stretch. How will these employers attract the best talent and simultaneously keep those folks from becoming competitors once they’re trained?

It’s going to be interesting to find out. In the meantime, just in case the FTC proposal falls through, or you’re presented with a non-compete clause for your next job, here are the basic steps to follow.

1. Don’t sign on the spot. Take a few days to review the non-compete, and the offer as a whole.

2. If possible, get the added perspective of an attorney or employment professional.

3. Don’t confuse non-compete with non-disclosure. Commonly called NDAs, non-disclosure agreements are narrower in scope, restricting the information or processes but not the work itself.

4. Watch the length and distance terms. A non-compete of only a few months might be a minor inconvenience, while restrictions of a year can be career-killers. Likewise, restrictions of a few miles may not matter, but a statewide ban could be crippling. And if the restriction is stated as “___ miles from any location,” you need to know where those locations are.

5. Get something in return. When signing a non-compete, ask for something back, such as guaranteed income for six months after leaving your position, for any reason. Unlikely? Perhaps, but it’s a place to start the negotiation.

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