FTC Bans Non-Compete Agreements

The Federal Trade Commission (FTC) on Tuesday approved a new regulation banning most U.S. employers from utilizing non-compete agreements. Not only will current non-compete agreements become invalid, but employers will have to notify employees in writing that those agreements are no longer valid. This will clearly affect insurance agencies wishing to keep producers from leaving and directly competing against them.

PIA and many other business groups have lobbied against this rule. The U.S. Chamber of Commerce has promised a court challenge, saying the FTC “lacks the statutory or constitutional authority to issue a competition rule.”  If this or another court challenge to the new rule is successful in getting an injunction, the effective date could be delayed for a year or more. If the rule does take effect in 120 days, as written, there are some work-arounds that can be used:

1. Instead of non-compete clauses, you can use non-piracy (non-solicitation) clauses that restrict departing employees from going after your customers or employees for a period of time.

2. Upon the bona fide sale of a business, there can be a non-compete clause included to prevent the prior owner from immediately opening a new business to compete with the one he/she just sold. This exception is stated in the rule.

3. Non-disclosure agreements are still allowed and are useful for protecting trade secrets. These can be reviewed and strengthened to help prevent departing employees from disclosing to a new employer the methods that your business uses to retain, grow, out-perform competitors, and etcetera.

4. The new rule does have a limited exception for top-level executives who earn more than $151,000 per year and have policy-making authority. Current non-competes with those employees can still be enforced, but new agreements cannot be made.

Non-competes have been under legal attack in recent years, and have been progressively limited by U.S. Courts. As a result, many employers have already made adjustments away from “non-compete” language and toward “non-solicitation” language.

PIA is currently updating the sample producer contracts that we offer to members for free in our member InfoHub at piaw.org, and those will be updated shortly. Please feel free to reach out to me (phanson@piaw.org) if you have questions or if you would like to receive a copy of the updated producer contract from PIA, once available.