by Kim, Lahey & Killough Law FirmFTC Non-Compete Ban Updates
FTC Non-Compete Ban: Current Status and Implications for Businesses
Presented September, 2024 by Kim, Lahey & Killough attorney Casey Martens
The Federal Trade Commission’s (FTC) recent attempt to ban most non-compete clauses in employer-employee contracts has encountered significant legal challenges, creating uncertainty in the business landscape.
On April 23, 2024, the FTC finalized a rule banning most non-compete clauses, originally set to take effect on September 4, 2024. However, legal challenges have substantially altered this timeline.
In July 2024, a federal court in Pennsylvania upheld the FTC’s authority to issue the ban. Conversely, on August 20, 2024, a Texas court granted a nationwide injunction against the rule’s enforcement, ruling that the FTC had exceeded its statutory authority and that the rule was arbitrary and capricious.
As a result of the Texas decision, the FTC is currently unable to enforce the rule. This provides a temporary reprieve for employers, suspending the need to comply with the rule’s requirements. However, businesses should remain vigilant, as the legal landscape continues to evolve.
While the FTC may lose this particular battle, the war on non-competes is far from over – the debate over non-compete agreements persists. State legislatures continue to introduce laws limiting the scope of non-competes, creating a complex regulatory environment, particularly for businesses with multi-state operations.
Given the uncertain future of non-compete agreements, businesses should consider alternative methods to protect their interests, such as:
- Non-disclosure agreements (NDAs) to safeguard confidential information and trade secrets
- Non-solicitation agreements to prevent former employees from poaching customers or staff
- Ownership and assignment of inventions (OAI) agreements for intellectual property protection
- Robust trade secret policies and internal controls
- Other intellectual property strategies involving copyrights, patents, and trademarks
When implementing these alternatives, it is crucial to ensure they are narrowly drawn and tailored to protect legitimate business interests without overreaching.
As the legal battle over non-compete agreements continues, businesses are advised to stay informed about the latest developments and be prepared to adapt their practices accordingly. Consulting with legal counsel to review and update employment agreements in light of these changes is highly recommended.
Casey Martens is an attorney in the firm’s Brevard, NC office. Licensed in North Carolina, South Carolina and Georgia, Casey represents employers and workers in employment matters, as well as business and intellectual property disputes.
by Kim, Lahey & Killough Law FirmEmily Bohan named 2024 Women in Business
Congratulations to Kim, Lahey & Killough Greenville Attorney Emily Bohan, named one of the 2024 SC Women in Business in recognition of her outstanding contributions to the legal and business communities in Greenville.
Emily Bohan has served as a leader and mentor to small and medium business owners for years. She has been a member of the Greenville Professional Women’s Forum member since 2011 and has served as an executive board member for the 2017-18, and 2020-2021 terms. Her dedication to empowering women in business and fostering their growth and development has been unwavering.
Her commitment to fostering collaboration and knowledge sharing within the local business community is exemplified by her co-founding of the networking group, a local confidential peer advisory forum My Trusted Advisors. This initiative has provided a valuable platform for small and medium-sized business owners to connect, learn, and grow together.
Emily Bohan’s business acumen is best defined through her experience running the Greenville PuroClean franchise, which she owned, managed and recently sold after 15 successful years. Her firsthand experience in navigating the complexities of running a franchise operation equips her with insights into the myriad of challenges faced by businesses. During her years there she was active and served as a presenter in both PuroClean’s Impact Group and PuroWomen, a women’s growth group. She has Chaired the Greenville Technical College, Environmental, Occupational Health & Safety Advisory Committee since 2022.
“What the public does not see every day is Emily’s determination to not only provide top notch legal representation to her legal clients, but to advance the knowledge base and successes of her peers through the delivery of continuing legal education courses and lunch and learns to educate and uplift those around her. Emily is a true asset to the legal and business communities in Greenville. Her leadership, mentorship, and entrepreneurial spirit are deserving of this recognition and we are proud to have her on our team.”
Emily Bohan focuses her law practice in the areas of business, franchise and employment law and is featured on page 48 of the July issue of Greenville Business Magazine.
by Kim, Lahey & Killough Law FirmNew DOL Rule Independent Contractor Classifications
New Department Of Labor Rule in Effect March 11 Affects Employee/Independent Contractor Classifications
Businesses relying on independent contractors need to know about the US Department of Labor’s new 6-factor test for determining worker classification under the Fair Labor Standards Act. This test narrows who is an “independent contractor,” and goes into effect March 11, 2024.
Key Changes in Worker Classification: New 6 Factor Test Used In Determining Worker Status. Factors considered:
- Opportunity for profit or loss depending on managerial skill;
- Investments by the worker and the potential employer;
- Degree of permanence of the work relationship;
- Nature and degree of control;
- Extent to which the work performed is an integral part of the potential employer’s business; and
- Skill and initiative.
DOL says these factors aren’t exhaustive. Instead, the analysis uses a totality-of-the-circumstances “economic reality” approach, allowing consideration of other relevant factors that “in some way indicate whether the worker is in business for themself.” Where the worker is dependent on the employer for work, they will not qualify as an independent contractor under this rule. Importantly, only the courts, federal and state agencies decide classification, not the employer or the worker.
Diverse Classification Standards:
Notably, this rule solely addresses DOL’s interpretation under the FLSA and does not supersede other law, such as state “ABC Tests,” IRS interpretations of common law, etc.
Serious Consequences for Misclassifying Workers:
- Owing double the worker’s damages
- Paying the other side’s attorney’s fees and costs
- Individual liability: individuals with a hand in misclassification aren’t shielded by the corporation; and
- To the extent a settlement is reached, the agreement itself—and the amounts paid—is public information.
- Not including IRS and/or DOL penalties.
What Employers Should Do Now:
- Review existing and future independent contractor arrangements against the new framework.
- Consider conducting a worker classification audit using the updated criteria.
- Explore the IRS Voluntary Classification Settlement Program (VCSP) with guidance from a CPA.
- Seek legal advice to understand the implications and ensure compliance.
If you would like for us to assist you in navigating the complexities of worker classification, please contact attorney Casey Martens at cmartens@kimandlahey.com or 864.973.6688.