A federal judge in Texas just ruled that the FTC “lacks the authority” to enact sweeping competition rules (like banning noncompete agreements between businesses and employees). The same Texas judge, Ada Brown temporarily blocked the FTC’s noncompete ban from taking effect last month after a challenge from the pro-business U.S. Chamber of Commerce (among other plaintiffs).
Brown said, “The Commission’s lack of evidence as to why they chose to impose such a sweeping prohibition—that prohibits entering or enforcing virtually all non-competes—instead of targeting specific, harmful non-competes, renders the Rule arbitrary and capricious.”
WHAT WE SHOULD BE LEARNING —
- The judge did not suggest that noncompete agreements are fair and equitable. She simply ruled that the FTC didn’t have the far-reaching authority to impose such a general ruling against ALL noncompetes.
- Geographic, long-term noncompetes, and noncompetes prohibiting the competition by a former employee for prospects who are not nor have ever been insured by the imposing company have been struck down in federal and state courts much more often than they have been upheld.
CONCLUSION
The FTC action should be a CALL TO ACTION for insurance agencies to rewrite their noncompete agreements – liberalizing them, not restricting them – to include non-piracy, non-solicitation and non-acceptance by a former employee for a reasonable period of time (one to two years – sufficient for the agency to assign someone to take over the relationship management of the clients).
If you currently have a geographic or more general noncompete agreement the liberalization should NOT require further incentives for the change to be made. That means that if you already have a more restrictive agreement you don’t have to give current signatories reasonable compensation to accept the change – the change acts in their favor. However, if you don’t have noncompete agreements at all, reasonable compensation must be offered to existing employees to accept restriction of their rights to compete (or it CAN be a condition of initial employment for new employees).
In any event, the rules of every State are different and you need the advice of an attorney in your State to confirm the required rules in YOUR State.
Call Al Diamond 856 779 2430 if you have questions.