FTC Pushes Comprehensive Non-Compete Agreement | Insurance business America
Existing non-compete agreements also face a challenge following the FTC’s landmark vote
Insurance News
By Jen Frost and Mark Schoeff
The Federal Trade Commission (FTC) has voted 3-2 to ban non-compete agreements, a move that is expected to impact tens of millions of Americans.
As part of the non-competition agreement, employers are prohibited from applying future non-competition agreements. Existing agreements, with the exception of those applicable to executive employees, become invalid.
The rule is expected to take effect 120 days after its publication in the Federal Register.
Democratic FTC commissioners voted for the ban while Republicans opposed it. Republican Commissioner Melissa Holyoak argued that the final rule “goes beyond congressional approval and is unlikely to survive a legal challenge.”
FTC Chairwoman Lina Khan said the “plain reading” of the law that created the FTC clearly gives her the authority to promulgate the rule.
According to the FTC, approximately one in five, or 30 million, American workers are subject to non-compete clauses.
“APCIA is concerned that the current proposed rule repealing non-compete agreements will impact tens of millions of workers across all major industries, including financial services and insurance,” APCIA said in its response to the FTC amendment to non-compete agreements.
Other insurance players expressed concerns about the impact of removing non-compete clauses in business sales.
The FTC will vote today on whether to ban non-compete agreements. Do you support a non-compete clause?
Share why or why not in the comments. #Insurance #InsuranceIndustry #InsuranceNews #Brokers
— Insurance Business America (@InsuranceBizUS) April 23, 2024
What is a non-compete agreement?
Non-compete clauses are typically used by employers or buyers when an employee leaves the company or an owner sells a business:
Purpose and duration of a non-compete clause
- Non-compete agreements are used to protect a company’s proprietary information and its access to customers
- They are usually enforceable for a certain period of time after the termination of the employment relationship.
Geographical boundaries and scope of a non-compete agreement
- The enforceability of non-compete clauses typically depends on reasonable geographical restrictions
- The scope of the prohibited activities is another factor in determining how and when a non-compete agreement applies.
State variability when it comes to a non-compete agreement
- The legality of non-compete agreements varies by state
- Some states, such as California, largely prohibit the use of non-compete agreements except under certain conditions.
Some insurance officials supported an FTC ban on non-compete agreements
Some people who were alleged to be insurance employees affected by non-compete agreements spoke in favor of a ban.
The insurance brokerage firm viewed the potential non-compete agreement as a “negative in our world, particularly in smaller plug-in acquisitions,” Pat Gallagher told investors during an earnings conference call.
Other leading insurance brokers were less concerned about the potential impact of changes to federal non-compete agreements.
“I don’t think there’s much to report here,” Marsh McLennan (MMC) President and CEO John Doyle told investors during a first-quarter 2023 earnings conference call the active talent market of insurance companies and the lack of non-competition clauses for producers.
- A non-compete agreement would increase workers’ earnings by nearly $300 billion per year, the FTC said.
- The FTC has calculated that its non-compete agreement will save consumers $148 billion annually in healthcare costs.
- A non-compete would also double the number of companies founded by former employees within the same industry, according to the FTC.
The FTC non-compete agreement promises a national approach
The FTC rule would impose a nationwide restriction on non-compete agreements, which typically prevent individuals from starting or working for competing companies at the end of their employment.
To date, state courts have taken a mixed approach to restricting non-compete agreements. In many cases, a non-compete agreement can be thrown out if it is found to be excessive. This could be due to an employee’s seniority or because the terms are too broad, such as covering too large a geographic region or not specifying an appropriate time frame.
“The higher you are on the food chain, the more likely it is that a non-compete will be enforced against you,” said Gregory Brown, a shareholder at Hill Ward Henderson. The Tampa, Florida-based attorney spoke with executives at a company.
“The idea that we need a rule that outright bans non-compete agreements to protect lower-level employees misses the point,” he told IBA last July.
Photo credit: Harrison Keely CC BY 4.0
Do you have an opinion on the FTC ban on non-compete agreements? Leave a comment below.
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2024-04-23 19:20:09
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