Employers in Oregon and across the U.S. are struggling to understand how to respond to recent conflicting decisions around noncompete clauses, which restrict workers from changing jobs in the same industry.
In April, the Federal Trade Commission issued a near-total ban on noncompetes, scheduled to take effect in September. But in early July, a federal judge in Texas backed a legal challenge to the FTC’s ban, saying the agency lacked substantive rule-making authority.
That ruling was preliminary, with a final decision expected by the end of August. The FTC, meanwhile, said it would still keep fighting non-competes, which agency Chair Lina Khan said “keep wages low, suppress new ideas and rob the American economy of dynamism.”
The issue is clearly controversial, as evidenced by the 21,000 public comments submitted to the FTC before it issued the ban. An estimated 30 million workers are subject to a noncompete agreement.
Among the commenters was a 17-year-old from Wilsonville who argued for the ban, saying the agreements prohibit “from freely taking on new opportunities to better” herself. State Treasurer Tobias Read, another supporter, said that safeguarding confidential, firm-specific information can be achieved “through the enforcement of copyright, patent, trademark and other intellectual property laws.”
“Relying on noncompete clauses as a means of protection is inefficient and time constrained, and often results in undue restrictions on employees’ career mobility,” Read wrote.
Oregon Business & Industry President & CEO Angela Wilhelms wrote in opposition, arguing that noncompetes encourage investment and protect intellectual property.
“Without clear direction from Congress, a federal agency has no business intervening in state law and interrupting state-governed contract law,” Wilhelms wrote.
The PBJ spoke with Jean Back, a shareholder and employment attorney at Schwabe Williamson & Wyatt to make sense of the fast-evolving rules around noncompetes. The implications will be felt by companies large and small in a host of industries — any that “have a secret sauce or a client base they want to protect,” Back said.
First off, it’s important to note that many states have their own laws around noncompete clauses. California doesn’t allow them at all. Oregon does, but with hoops to jump through, as Back put it.
The statute was first enacted in 2007 but amended and strengthened every few years. Essentially, it says that an employer can have a noncompete provision for an employee who makes at least $100,500, Back said. The employer also has to give the employee notice that they’re going to be required to sign the agreement and give them two weeks to think about it before they accept the job offer or a bona fide advancement, she said.
The federal landscape, however, will likely be in a state of flux for months to come.
Although the recent court decision is narrow, applying just to the plaintiffs in that case, more cases are percolating, including one pending in federal court in Pennsylvania.
“We might see a lot of cases filed and the more there are, the more likely we will get a nationwide injunction, or the Supreme Court will” rule on the matter, Back said.
She said she has fielded numerous calls from clients with questions about what actions, if any, they should take.
For example, the FTC said employers with employees under noncompetes must give notice by Sept. 4 that they will not enforce it, barring a broad federal injunction before then.
“Most of my clients are standing by, not going to do anything to get rid of their noncompetes until they have to, and they don’t have to until Sept. 4 comes along and there’s no nationwide injunction or it’s stayed,” Back said.
The judge who issued the injunction relied on a recent Supreme Court decision limiting the regulatory power of federal agencies.
“That’s changed the playing field for tons of different industries, and also affects the FTC in this ban and makes it harder for them to argue they had authority,” Back said.
Outside of noncompetes, employers have other ways of protecting trade secrets and other confidential information, such as nondisclosure agreements, which are exempted from the ban and from Oregon law, Back said.
“I have lots of clients whose employees are sticking flash drives into computers and downloading client lists, bidding and quoting lists, trade secrets, and it’s just all of a sudden happening all over,” she said.
Non-solicitation agreements are another tool, one she recommends narrowly tailoring. Companies can also require employees to sign agreements around intellectual property.
“They may still have someone that goes to work for a competitor, but they’re hamstrung,” Back said.
Read the full article in the Portland Business Journal.
This article was republished with permission from the Portland Business Journal.
