What the Proposed Non-Compete Prohibition Means for a Senior Advisor

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Ted Jenkin signed a non-compete agreement when he sold his financial consulting practice in 2019.

Source: Ted Jenkin

When certified financial planner Ted Jenkin sold his financial consulting practice in 2019, he signed a non-solicitation, non-compete agreement that prohibited him from taking on clients from the firm for five years — or from any other employment in the industry, anywhere in the world. country.

“When you sell a business, in large part you’re selling customers or ideas, but not being able to do work in this business doesn’t make pragmatic sense,” he said. “It’s insane.”

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Bound to that clause, Jenkin, who is a member of CNBC’s Financial Advisory Board, remained an employee until the end of last year.

“Now I can fulfill the contract or do something in the industry and we will have a legal battle,” he said.

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That is, unless a federal regulatory agency does what it wants.

Recently, the US Federal Trade Commission proposed a new rule prohibiting the use of non-compete clauses in employee contracts in almost all industries because, according to the agency, they suppress wages, hinder innovation and prevent entrepreneurs from starting new businesses. .

The proposed rule would require companies with existing non-compete agreements to terminate them and inform current and former employees that they were terminated, in which case Jenkin would be free to pursue other employment.

“I would be the first person to start working again,” Jenkin said. “I wouldn’t be afraid to get into a legal battle just because I’m working in my profession.”

Nearly a Fifth of US Workers Sign ‘No Competing’

FTC proposes new rule to ban non-compete clauses

Noncompetitive ones are widely used in industries such as finance, but also, increasingly, in many other occupations, according to the FTC, “from hairdressers and warehouse workers to doctors and executives.”

Most of the time, there is little room for manoeuvre: less than 10% of workers are able to negotiate these clauses and 93% of them read and sign them anyway, according to the National Labor Law Project.

It is estimated that more than 30 million workers – or about 18% of the US workforce – are bound by these agreements.

“Uncompetitive ones prevent workers from changing jobs freely, depriving them of higher wages and better working conditions and depriving companies of a pool of talent they need to build and expand,” said FTC Chair Lina Khan. in a statement.

If this practice is stopped, wages could increase by nearly $300 billion a year, according to the FTC.

‘Non-compete agreements are an important tool’

Still, there are several steps before the proposed regulation takes effect, including “inevitable litigation” that challenges the FTC’s authority, said Michael Schmidt, employment and labor attorney at Cozen O’Connor in New York.

“The attempt to ban non-compete clauses in all employment circumstances overturns the well-established state laws that have long governed their use and ignores the fact that, when used properly, non-compete agreements are an important tool to promote innovation and preserve competition,” said Sean Heather, US Chamber of Commerce senior vice president for international regulatory affairs and antitrust.

A total ban is “clearly illegal,” Heather said. “Congress has never delegated to the FTC anything approaching the authority necessary to enact such a competition rule.”

If it gets stuck in the court system, the regulatory process can take up to a year or more, according to Schmidt.

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