Non-Compete Rule Struck Down
A federal judge in Texas this week set aside the Federal Trade Commission’s (FTC) rule that would ban businesses from imposing non-compete clauses in employment dealings.
While non-compete clauses aren’t common in the home care sector outside of top executives, “direct-hire” or “non-solicitation” clauses are frequently used by the industry to cut down the negative consequences incurred by losing a caregiver that is hired directly by a client. Those policies also would have been banned by the FTC, so the judge’s decision to disallow the rule entirely is good news for our industry. The rule was set to take effect early next month.
Note that some states currently have strict requirements surrounding non-compete agreements. See below for some information about New York.
In this week’s ruling, the judge ruled that the FTC lacked the authority to enforce such a wide-reaching ban on a common business practice. The decision rendered the FTC rule arbitrary and capricious.
The FTC is considering challenging the ruling. However, legal experts say an appellate court is unlikely to side with the federal agency.
What is a Non-Compete Agreement or Clause?
Very basically, a non-compete agreement is one that prevents an employee from seeking employment from a competitor or opening a competing business. Generally, there is a time period specified and a geographical limitation attached to the agreement, which may be part of a contract or a completely separate legal document.
Historically, states have enacted these laws and the federal government has stayed out of the issue. Since 1914, the FTC has operated for consumer protections, not worker protections. But in 2021, the Biden administration ordered the FTC to work on a non-compete ban, declaring them too restrictive for workers.
New York State
The following information is only a high-level summary and is not legal advice. Please be sure to consult your legal advisors on non-compete issues.
NYS law allows employers to require a non-compete agreement, but only if it meets all the following criteria:
- It is necessary to protect the employer’s legitimate interests
- It does not impose an undue hardship on the employee
- It does not harm the public, and
- It is reasonable in time period and geographic scope
Note that a business’ legitimate interests include trade secrets and confidential information, and the applicability of a non-compete does extend to prevent employees from taking specialized skills acquired on the job to work elsewhere.
If you have your home care workers sign a non-compete agreement, be sure they understand the timelines, geography, and scope of its terms. Likewise for client agreements that prevent a consumer from “stealing” your aide.