THE FTC NONCOMPETE BAN: WHAT F&B EMPLOYERS & EMPLOYEES NEED TO KNOW

DISCLAIMER: This post does not constitute legal advice and is presented for information, education, or entertainment purposes. It is opinion and commentary, and merely attempts to review laws and their interpretation to assist businesses (and consumers) in planning. If you have questions, then please speak to your legal professional or the appropriate regulatory authority.

Earlier this week, the Federal Trade Commission issued a final rule (link) effectively banning non-compete agreements for most workers nationwide. This significant development has wide-ranging implications for employers and employees across all industries, including the food and beverage sector. The rule is linked above, but fair warning, the rule and discussion are over 500 pages long, so get your pajamas and chamomile tea ready.

WHAT DOES THE FINAL RULE DO?

Long story short, the FTC's final rule prohibits employers from enforcing non-compete agreements with most workers after their employment ends. Of course, non-compete clauses typically restrict employees from taking jobs with competitors after leaving a company.

WHY ISSUE THE FINAL RULE?

President Biden's 2021 Executive Order on Promoting Competition in the American Economy specifically called on the FTC to address non-compete agreements. The FTC's recent rule can be seen as a response to that directive. The FTC’s rational against non-compere agreements is that they stifle competition in two key ways:

• Reduced Worker Mobility: Non-competes can limit workers' ability to find better opportunities, potentially leading to stagnant wages across industries.
• Hindered Innovation: When employees are restricted from moving between companies, the flow of ideas and expertise can be hampered, slowing down innovation.

WHO DOES THE RULE APPLY TO?

The ban applies to a broad range of workers, including those in the food and beverage sector:

• Chefs, recipe developers, and other culinary professionals
• Marketing specialists and salespeople
• Production line workers (with some exceptions)
• Delivery drivers and customer service representatives
• Independent contractors

WHO DOES THE RULE NOT APPLY TO?

There are exceptions for non-profit enterprises, for those selling a business, for agreements enforced where the cause of action accrued prior to the rule’s effective date, and for "senior executives." However, the bar for this senior executive exemption is quite high. It applies only to those who:

• Earn more than $151,164 annually (as of April 2024)
• Hold a policy-making position within the company

DOES IT ONLY APPLY TO NONCOMPETES?

Yes and no. Yes, it does only apply to non-competes on its face since it does not ban NDAs or non-solicitations agreements. But the rule does say that it could ban these other kinds of restrictions when they have the same functional effect as a non-compete would. So, maybe there’s an NDA or non-solicitation agreement that cover such a large amount of information or customer base that effectively prevents someone from working in their given field.

WHEN DOES IT TAKE EFFECT?

So, as of right now, noncompete agreements are still in effect. When the rule does take effect (if it does, and it’s a big if), it will be retroactive - which means that the rule bans new non-competes after the effective date, but also invalidates existing non-competes subject to few exceptions.

But as to an effective date, in short, we don’t know. Two big things that will impact the implantation of the rule:

• Publication in the Federal Register: The final rule isn't yet published in the Federal Register. This is one of the initial steps before it takes effect. Once a final federal rule gets published in the federal register, there’s a 120-day waiting period before it takes effect.
• Legal Challenges: The FTC's ruling is already facing legal challenges, which could delay or potentially block its implementation. The big challenge right now has come from the United States Chamber of Commerce who has already filed suit in federal court in Texas. The basis of that lawsuit is that the FTC overstepped its authority. The Chamber claims the FTC's role is to enforce existing antitrust laws, not create new regulations on contracts like non-competes.

WHAT CAN F&B BUSINESSES & EMPLOYEES DO RIGHT NOW?

• Pay Attention: The final rule isn't yet published in the Federal Register, and might well be blocked by the federal court. But it would be important to keep up with what is happening so that any compliance deadlines are hit.
• Review Existing Agreements and Policies: It is a good time to review your policies and documentation to determine who, if anyone, is impacted, and what, if anything, needs to happen with those employees that are. 
• Focus on Trade Secrets: Additionally, it is probably a good time to look at strengthening any trade secret protection. If you don’t have them already, develop and implement robust trade secret protection policies to shield your company's confidential information, such as unique recipes or production processes.
• Competitive Compensation & Benefits: Obviously, offering competitive salaries, benefits, and a rad work environment can incentivize employees to stay with your company without relying on non-compete agreements.
• For Employees: ​You should review any agreements or other documents that you have with your employer to see what, if anything, you are subject to in terms of your obligations both during and after employment. You should continue to follow those obligations or review their legality. It might also be an opportunity to speak with your employer about those obligations and their obligations towards you.

ABOUT BROOK BRISTOW

Brook Bristow focuses his practice on alcoholic beverage law and commercial matters. Representing hundreds of clients from small start-ups to national brands, Brook counsels those in the food and beverage industry such as breweries, wineries, distilleries, distributors, and retailers. He regularly advises on federal and state regulatory compliance, licensing, contracts, intellectual property, and federal label and formula approvals, among other topics. He enjoys central coast zinfandel, aged rum, and can brew a passable IPA. You may reach him directly at [email protected]