The Stoel Rives Labor & Employment Law Blog
Ryan Kunkel, an associate in Stoel Rives’ Labor & Employment group, helps employers resolve employment-related disputes in litigation and counsels clients to help prevent those disputes in the first place. His practice also includes helping management resolve complex labor disputes, including organizing drives, NLRB proceedings, and work stoppages.
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The recent federal court ruling that struck down the Federal Trade Commission’s (FTC) rule banning non-compete agreements has given employers some relief, but it doesn’t mean non-competes are no longer under scrutiny. While the ruling prevents the FTC’s proposed ban from taking effect, state legislatures across the country have been tightening restrictions or imposing outright bans on non-compete agreements over the past few years. To avoid potential legal pitfalls, employers need to stay up-to-date on these evolving state laws.
We’ve prepared a full rundown of these changes, their implications, and what they mean for your business here.
On Tuesday, August 20, a federal judge in Texas shot down the Federal Trade Commission’s rule banning noncompete agreements (“the Rule”) that was set to take effect September 4. This means that the FTC cannot enforce the Rule. As a result, enforceable non-competes currently in place remain enforceable, and businesses and workers are free to enter into new non-competes (subject to applicable state law restrictions).
Earlier this summer, on June 3, the Court previewed its conclusion that the Rule was unlawful because the FTC exceeded its statutory authority in implementing the Rule, and that the Rule is arbitrary and capricious. But employers have been anxiously awaiting Tuesday’s ruling on the merits, uncertain about the future of non-competes.
On Tuesday, the Court affirmed its decision that the Rule is unlawful. The Court specifically held the FTC lacked the authority to create substantive rules regarding unfair methods of competition. The Court emphasized that agencies like the FTC are merely “creatures of Congress” and have “no power to act . . . unless and until Congress confers power upon [them].” In this situation, Congress did not empower the FTC to act to ban noncompetition agreements nationwide.
The Court also held that the FTC failed to justify the Rule’s nearly universal breadth. If it had gone into effect, the Rule would have retroactively invalidated over 30 million employment contracts and preempted the laws of 46 states. The Court described the Rule as “unreasonably overbroad without a reasonable explanation” because it imposed “a one-size-fits-all approach with no end date” and because the FTC failed to consider less disruptive alternatives. The Court ultimately found that the FTC’s lack of evidence as to why it chose to impose such a sweeping prohibition—that prohibits entering or enforcing virtually all non-competes—instead of targeting specific, harmful non-competes, rendered the Rule arbitrary and capricious. As a result, the Court found that the Rule was unlawful.
The FTC could appeal the ruling to the Fifth Circuit Court of Appeals. However, it is possible—if not likely—that the Fifth Circuit would agree with the Texas court and affirm the decision, as would the Supreme Court, if the FTC ever pursued the case to the nation’s highest court.
Even if the FTC abandons its effort to ban non-competes on a national level, states around the country will continue the assault. Several states have recently passed laws banning or restricting the use of non-competes, and others are likely to follow. Congress could get involved as well. A separate article discussing the fate of non-compete agreements is forthcoming. Stay tuned. But for now, rest assured that non-competition agreements are still permitted by federal law.
Related Post:
Navigating the Changing Landscape of Non-Compete Agreements: What Employers Need to Know (8/30/2024).
The recent federal court ruling that struck down the Federal Trade Commission’s (FTC) rule banning non-compete agreements has given employers some relief, but it doesn’t mean non-competes are no longer under scrutiny. While the ruling prevents the FTC’s proposed ban from taking effect, state legislatures across the country have been tightening restrictions or imposing outright bans on non-compete agreements over the past few years. To avoid potential legal pitfalls, employers need to stay up-to-date on these evolving state laws.
We’ve prepared a full rundown of these changes, their implications, and what they mean for your business.
Two administrative agencies within the federal government have been busy lately publishing new rules that govern important aspects of employers’ relationships with their employees. Read more below for further updates.
The U.S. Department of Labor (“DOL”) has rolled out its long-awaited update to the minimum salary requirements for employees who are exempt from the Fair Labor Standards Act’s (“FLSA”) overtime and minimum wage requirements under the so-called “white collar” exemptions (administrative employees, executive employees, professional employees, and computer employees). Here is what you need to know about what the new rule requires:
Here are some additional important points to keep in mind about the new rule:
Please stay tuned for more updates about the DOL’s new rule. In the meantime, please reach out to us with questions.
The Federal Trade Commission (“FTC”) recently published a final rule banning virtually all new non-compete agreements and, with limited exceptions, requiring employers to notify employees that their current non-compete agreements are no longer enforceable. The new rule is scheduled to go into effect on September 4, 2024. However, because of several pending lawsuits in which businesses and business groups have contended that the FTC lacked the legal authority to issue the new rule, it is questionable whether it will go into effect at all or, if so, when.
Section 5 of the Federal Trade Commission Act prohibits “unfair or deceptive acts or practices in or affecting commerce.” Traditionally, the FTC, which has the authority enforce the FTC Act, has relied on Section 5 to enforce consumer-protection standards and anti-competitive standards under other federal antitrust laws. However, in January 2023, the FTC announced its intent to regulate employee non-compete agreements under the auspices of Section 5 and published a proposed rule that largely outlawed them on a nation-wide basis.
The final rule largely tracks with the proposed rule. There are three main parts of the final rule.
First, the rule defines a “non-compete clause” as a requirement that a “worker” (including both employees and independent contractors) refrain from “[s]eeking or accepting work in the United States with a different person” or “[o]perating a business in the United States” after the worker’s employment concludes. Other restrictive covenants, such as confidentiality, or non-solicitation agreements, are still permitted despite the final rule. However, such restrictive covenants could nevertheless be prohibited under the final rule if they are so broad in scope that they function as non-competes.
Second, the final rule bars all employers that are subject to the FTC’s jurisdiction from entering into new non-compete agreements. The only exception is for non-competes that a worker agrees to as a condition of the “bona fide” sale of a business. However, this exception is somewhat limited because (per the FTC’s comments accompanying the final rule) it only applies when there has been a legitimate, arms-length transaction between unrelated buyers and sellers in which the seller exchanges its business good will as part of the sale.
Third, the final rule requires employers to provide workers who are subject to current non-compete clauses “clear and conspicuous notice” in writing by September 4, 2024, that the non-compete clauses will not and cannot be legally enforced. To be clear, this means that the new rule is retroactive. Subject to the following three exceptions, the new rule reaches all current non-competes even if they were entered into long before the final rule goes into effect. The first exception is for non-competes agreed to as part of “bona fide” sales of a business, as described above. The second exception is for non-competes with so-called “senior executives,” who are defined as workers earning more than $151,164 annually who serve in a policy-making position. Employers may enforce current non-competes with senior executives, but may not enter into any new non-competes with them. Finally, the third exception is for non-competes that are the subject of current litigation, or where a cause of action, for the violation of the non-compete that accrues prior to September 4, 2024 may be enforced by the court hearing the matter.
Next Steps:
Whether the final rule takes effect in September remains to be seen. Three lawsuits have been filed in an effort to enjoin enforcement of the final rule. It is possible (some think likely) that a court will take action to block the final rule from taking effect, and will ultimately strike it down as unlawful.
For now, employers should consider taking the following action:
Please contact us with any questions about the FTC’s new rule and what to do next.
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Today, the Supreme Court blocked the Biden Administration’s vaccine-or-test mandate for large employers, known as the Emergency Temporary Standard (“ETS”), which we wrote about here. The Court held that the federal agency that issued the ETS, the Occupational Safety and Health Administration (“OSHA”), has authority to regulate workplace safety issues, but not to regulate public health more broadly. A 6-3 majority of the Court ruled that the vaccine-or-test mandate ventured into the latter and thus exceeded OSHA’s authority. At the same time, the Court ruled that regulations applicable to recipients of Medicare and Medicaid funds – most health care providers – were within the agency’s authority, and could lawfully require vaccination of those providers’ employees.
The Court’s ruling does not put the final nail in the coffin for OSHA’s ETS, but it does increase the likelihood that it will one day be buried for good. For now, the Court’s ruling means that non-health care employers with 100 or more employees need not implement a vaccine-or-test policy that complies with the ETS. However, some states have implemented vaccine requirements for certain employees (for example, health care workers in Oregon and Washington), and private employers – of any size – may, of course, choose to adopt such a policy. But they are no longer required to do so by the federal government.
Recipients of Medicare and Medicaid funds must comply with the federal regulations requiring vaccination of employees, without a testing alternative (with some exceptions for employees with disabilities or religious beliefs that preclude vaccination). We recommend that any employer considering a mandatory vaccine policy consult with employment counsel.
At this moment, state governments – such as Oregon and Washington – have not finalized broad vaccine mandates for private employers other than the targeted requirements that had already been issued such as for health care workers. While the state agencies may still issue more far-reaching vaccination mandates, the Supreme Court’s decision today may take some wind out of those sails.
Finally, the Supreme Court’s decision raises questions about the Biden Administration’s requirement that federal contractors adopt a vaccine-or-test mandate similar to the ETS, which is still being litigated. Stay tuned for updates.
While many employers initially were hesitant to institute mandatory COVID vaccinations, the recent surge driven by the Delta variant and announcements from large organizations—including the U.S. military, United Airlines, and major health care systems across the country—have caused many employers to revisit mandatory vaccination policies.
The Equal Employment Opportunity Commission and U.S. Department of Justice (DOJ) have made clear that, absent a contrary state or local law that prohibits mandatory vaccines (as we previously blogged about for Oregon’s restrictions for health care employers here, with accompanying regulations available here), employers may require employee vaccination as a condition of employment. This is true notwithstanding the current Emergency Use Authorization (EUA) status of the COVID vaccine, which may have led some employers to hesitate in issuing a vaccine mandate. In a recent written memorandum, the DOJ explained that the EUA status does not affect whether such a mandate is lawful:
Section 564(e)(1)(A)(ii)(III) of the Food, Drug, and Cosmetic Act concerns only the provision of information to potential vaccine recipients and does not prohibit public or private entities from imposing vaccination requirements for a vaccine that is subject to an emergency use authorization.
For employers considering implementing a mandatory vaccination policy, below are some factors to consider:
If you are considering implementing a mandatory vaccination policy or have any questions, please contact us.
Late last week, Governor Kate Brown announced that the State of Oregon would largely remove its mask and social-distancing requirements once 70 percent of adult Oregonians have received at least one dose of a COVID-19 vaccine. Following that announcement, the Oregon Occupational Health and Safety Administration (“OR-OSHA”) published its plans to repeal at least some aspects of its COVID-19 workplace safety rules once the 70 percent target is reached.
The biggest takeaway for employers is that OR-OSHA intends to repeal its requirements related to face coverings and physical distancing. If OR-OSHA follows through with that intention, employers will no longer be required to mandate face coverings or enforce social distancing for non-vaccinated employees or customers.
OR-OSHA’s announcement stated:
As Oregon Gov. Kate Brown announced last week, once Oregon reaches the 70 percent vaccination threshold the state will not require masks and face coverings in almost all settings, with some exceptions following federal guidance, including airports, public transit, and health care settings. The governor has also asked Oregon OSHA to review its workplace rules and update them based on this decision.
Consistent with the governor’s decision, Oregon OSHA intends to repeal the basic face covering and physical distancing requirements of its COVID-19 rule when the state reaches 70 percent of its adults vaccinated against the virus with at least one dose. Oregon OSHA is also convening stakeholders to review its COVID-19 rules in light of the governor’s announcement and to determine whether other provisions should be repealed. Oregon OSHA expects to begin those discussions during the week of June 14.
OR-OSHA’s announcement does not come as a surprise given the Governor’s comments last week and the trend toward re-opening that has followed the federal Centers for Disease Control and Prevention’s (“CDC”) guidance issued last month that fully vaccinated individuals need not observe physical distancing requirements or wear face coverings in most settings.
We will continue to keep you posted about OR-OSHA’s plans to formally terminate its COVID-19 safety rules.
