Ohio workers, still bruised by their experience, pleased to see FTC banning non-compete agreements

Last month in long-telegraphed vote, the Federal Trade Commission approved a rule banning non-compete contracts. The commission determined non-competes represent an unfair method of competition because they restrict the free flow of workers.

Since the initial draft rule was released, business groups have criticized the idea. Non-compete agreements serve “vital procompetitive business and individual interests,” the U.S. Chamber of Commerce argued in comments to the FTC. The Chamber and others contend non-compete agreements act as a moat — protecting and encouraging businesses’ investments in research or worker training.

In a press release U.S. Chamber President and CEO Suzanne Clark argued, “This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy.”

But the FTC dismissed those critiques. The commission noted businesses have other mechanisms, like non-disclosure agreements and trade secret laws, to protect their intellectual property.

FTC estimates put the number of employees currently operating under a non-compete contract at roughly one in five Americans, or about 30 million workers.

“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once non-competes are banned,” FTC chair Lina Khan said in an announcement following the vote.

The Commission also estimates the average worker will see their pay increase by about $500 a year, and more than additional 17,000 patents will be filed annually for the next ten years.

Carveouts and headwinds

Although the rule bans new non-compete contracts across the economy, in response to pushback, the FTC included a carve out for senior executives. The rule defines that class a people with policy making decisions who bring home more than about 150,000 a year. Existing non-competes for senior executives can remain in force, but the rule prohibits any future agreements.

Also, in response to pushback, the FTC simply prohibits companies from enforcing noncompete contracts. The initial rule required them to officially rescind the contracts which could’ve been cumbersome and expensive. Under the final rule companies would also need to notify employees they are no longer bound by the agreements.

Notably, the FTC’s vote wasn’t unanimous. The two Republican members wrote dissenting statements arguing the rule goes too far and relies on an understanding of the agency’s authority that “fell out of favor decades ago.” Both commissioners acknowledge reservations with non-compete agreements, but argue any sweeping changes fall within Congress’s ambit. They add Congress’s inability to muster the political will to make changes is a feature, not a bug.

The final rule doesn’t take effect until early September — that is unless the courts step in and put it on hold. The same day the FTC voted to approve the rule, a tax services firm in Texas filed the first challenge in federal court. Like the dissenting commissioners, the firm argued the FTC has exceeded it’s delegated authority.

“If ever a federal agency attempted to pull an elephant out of a mousehole, this is it,” the company’s initial complaint argued.

The FTC wants to ban non-compete contracts, U.S. Rep. Jim Jordan wants to block that effort

Commission spokesman Douglas Farrar pushed back.

“Our legal authority is crystal clear,” he insisted. “In the FTC Act, Congress specifically ’empowered and directed’ the FTC to prevent ‘unfair methods of competition’ and to ‘make rules and regulations for the purposes of carrying out the provisions of’ the FTC Act.’”

“This authority has repeatedly been upheld by courts and reaffirmed by Congress,” he added. “Addressing non-competes that curtail Americans’ economic freedom is at the very heart of our mandate, and we look forward to winning in court.”

At least two other challenges have been filed since the initial one.

“I only survived it.”

The Ohio Capital Journal reported on the FTC’s proposed rule in March of last year, highlighting the experiences of a handful of people who work or worked in Ohio. Last week, the Capital Journal followed up to hear their reactions to the FTC rulemaking.

Sarah Eischen and Cindy Holbrook are moving on with their lives, but the experience left them confused and scarred.

Holbrook described a former coworker texting her about the FTC’s vote, “she said you did it, Cindy.”

“And I responded to her, I didn’t do anything. I only survived it.”

Holbrook is a cosmetologist who moved to Toledo to take a job with a high-end salon. She already had more than two decades of experience in the industry. Eischen was an account manager for a plumbing manufacturer in Cleveland. Similar to Holbrook, she walked in the door with substantial industry experience — in her case 15 years.

Sarah Eischen

Eischen signed a non-compete as part of a large package of paperwork. Her former employer ended terminated her without explanation after less than a year, but warned they would still enforce the non-compete contract — an explicit, global prohibition on her taking a job with 20+ companies for a year, and a demand that she get permission before taking a job with any other company in the plumbing field.

On the way out the door she attempted to negotiate modifications that would pare back the list to the company’s direct competitors. They wouldn’t budge. Eischen wound up leaving her severance on the table over it.

About nine months into her non-compete she got a job with Zurn Elkay.

“And they found it kind of funny,” she said, “because they didn’t think that my previous employer was a competitor of theirs.”

After some discussions with Eischen’s attorney and Zurns legal team they decided to go forward quietly. They didn’t publicize Eischen’s new gig and they kept her off accounts that would overlap with her former role until the non-compete ran its course.

“My attorney thought that they would probably just let it ride rather than try to go after me for it,” she explained, “And it seems that that’s kind of what happened.”

“You know, it was kind of like you saw a little bit behind the bluff of a poker game,” she added.

Still, the experience was bruising. She’s hesitant to invoke PTSD, but it’s the closest comparison she can come up with.

“I was a very confident professional before all this and it has just completely been shaken,” she said. “To the point where I question myself probably, at least once a week.”

“And I know that I’m doing the job that I’m supposed to be doing and like I said, my boss is great and everything, but it really did like, affect me, personally, and mentally as a professional.”

Cindy Holbrook

Holbrook’s non-compete barred her from working at any other salon within 15 miles. She found a job with a salon in a different town; it was 11 miles away in a straight line, but a 14-mile drive. Her former employer sent a cease-and-desist letter.

Holbrook had to quit and started picking up shifts at her old salon in Michigan every other weekend. To make ends meet she picked up a string of other gigs — First Watch, Crunch fitness, a local wellness center. Eventually she landed at her current salon, and like Eischen, she started quietly before the non-compete had run its course.

“I went down to just like two days,” she said. “Anytime there was a walk in or somebody called looking for somebody I was able to take that but not able to advertise, not able to grow my clientele.”

She still works weekends at a restaurant, and she’s started going to therapy.

“For that entire year, I would have people be like, ‘Oh, September’s not that far. Oh, September is not that far,” she described.

Once the non-compete ended, old clients and her current salon owner congratulated her, but Holbrook just felt empty.

“I remember telling my boyfriend, I don’t know why I can’t be excited about this,” she said. “I should be excited about this, but I don’t feel excited about it. I feel like I’m constantly looking over my shoulder.”

She explains when she left Soto she had built a small client base but knew she couldn’t solicit those customers when she moved on to her next salon. She then built a new list of clients at the salon 14 miles away before getting the cease-and-desist letter. Now, she’s on her third round of trying to build up her business.

In some ways, Holbrook says, things are good—she loves her current salon and her co-workers. But after a year in “survival mode” she’s still picking up the pieces, and when it comes to actually turning the page, she feels stuck.

“I know the thing to do,” Holbrook said, “but bringing myself to do it, I’m like —”

“I’ve kept my book with my clients on my nightstand for the entire time,” she went on. “Like, it’s there. It reminds me every single day: pick it up and just call the numbers, text the numbers, send something — and I don’t.”

Follow OCJ Reporter Nick Evans on Twitter.