Door and window dealers spend years accumulating customers. Some guard those customer lists by having salespeople sign noncompete agreements, barring them from transferring to competing companies, possibly taking customers with them. The Federal Trade Commission (FTC) voted to end that practice this week, choosing to ban employers from imposing noncompete agreements on almost all workers.

Those within the FTC who voted for the ban argued that noncompete agreements are unfair because they limit where unsatisfied employees can find new jobs. For senior executives, who are employees making more than $151,164 per year and in “policy-making positions,” current noncompete agreements remain, but future contracts will not be allowed. 

According to the rule, employers must tell current and past paid employees, independent contractors and unpaid workers that they are no longer enforcing their noncompete agreements. 

Already there has been legal backlash.

On the afternoon of April 23, the tax services and software company Ryan LLC filed a suit against the ban in Texas federal court, arguing that the FTC was overstepping its authority. On April 24, the U.S. Chamber of Commerce filed a suit regarding the ban in Texas federal court, claiming the FTC is responsible for enforcing current antitrust laws, not defining other anticompetitive behavior.

“The final rule to ban all noncompete agreements nationwide—except existing noncompetes for senior executives—is a radical departure from hundreds of years of legal precedent,” said Ben Brubeck, vice president of regulatory, legal and state affairs for Associated Builders and Contractors. “Ultimately, this vastly overbroad rule will invalidate millions of reasonable contracts—including construction project contracts—around the country that are beneficial for both businesses and employees.”

The FTC lacks the statutory and constitutional authority to issue the rulemaking, ABC officials said. Noncompete agreements are “appropriately regulated at the state level,” they add. Further, the proposed rule violates the Administrative Procedure Act, officials alleged. Contractors have valid business justifications for issuing noncompete agreements, “such as protecting confidential information and intellectual property,” they said.

Kirk Morgan, president of door and window dealer Morgan Exteriors Inc., in Lutz, Florida, said his feelings are mixed.

“I like noncompete agreements, but the reality of it is that I’m not going to spend a bunch of money on attorneys to enforce the agreements,” Morgan said.

At the same time, “There is a very large, nationally known home improvement company that has indeed enforced its non-compete agreements, which has upset a number of home improvement company owners,” he said. “I’d like to see the agreements being done away with just to disarm said owner of the large company.”

Morgan might get his wish. The ban is supposed to take effect 120 days after it appears in the Federal Register.

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