Group Publisher Jill Bloom speaks with Trent Cotney, partner and construction practice group leader at the law firm of Adams and Reese LLP and NRCA general counsel, as he gives us an update on this sensitive issue.
As a quick summary of what we reported on when we spoke on the issue back in the spring: On April 23, the Federal Trade Commission voted 3-2 to issue a new rule prohibiting the use of non-compete agreements for most U.S. workers. It is estimated that approximately 30 million workers are currently bound by such agreements, which prevent them from changing employers in their industry.
The FTC asserts that non-compete agreements are bad for the labor market, discourage workers from starting their own businesses, and suppress salaries. The rule is part of the 2021 Executive Order on Promoting Competition in the American Economy. However, some parties are pushing back.
“Recently, a district court in Texas issued a temporary injunction. In order to issue this, you have to produce evidence that you could be successful on the merits,” said Cotney. “What’s interesting is the court granted the temporary injunction, which means the judge found enough to suggest that the arguments made were potentially successful in obtaining that permanent injunction. The ban, as it stands now, will go into effect in September. The judge has said she will hear the hearing on the permanent injunction prior to August 30 (so that a decision can be made).”
So, where does it stand right now?
Well, this decision only affects the plaintiff in this case, which was a tax consumer group. And it only affects it in that district. But it’s important to note that this isn’t the only legal challenge out there. This is the purvey of Congress, not executive agency action. So there are some constitutional arguments that this is overturned, Cotney said.
If for some reason this goes forward, what do employers need to do? “Well, there are still some ways you can ensure your employees unfairly compete against you. But when you have someone you have especially trained and have given access to information, you still want to secure that, so things like non-solicitation, this is still largely in effect,” Cotney said.
One of the things that I’ve spoken to different roofing contractors about is the ability to recapture training costs or a signing bonus. So there are disincentives that you can put in place in the event that an employee stays within the same amount of time as agreed pre-hiring.
“As I mentioned before, the best way to ensure that your employees don’t compete against you is to keep them happy. We live in a world that regardless of what trade you are in, lack of skilled labor is still an issue,” he said. “Recognize that even if this goes through, which is a big ‘if,’ there are still ways to retain quality employees.”
Cotney has reviewed some of the arguments made about this clause and a lot of those are constitutional-based arguments: the freedom to contract; to negotiate—basic fundamental rights. Historically, states have been free to restrict non-competes. But once you start having an executive agency interfere, there are jurisdictional issues there.
