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On the eve of the Fourth of July, the FTC rule banning most noncompetes is going up in smoke after a federal court in Texas held the US Chamber of Commerce and a tax firm are likely to prevail on their argument that the agency overstepped its authority to adopt the nationwide prohibition.

The decision, on the heels of the US Supreme Court’s ruling reining in federal agency power under the Chevron doctrine, demonstrates the challenge the FTC faces in promulgating substantive regulations dealing with competition in the economy.Continue Reading Red, White and Blocked: Federal Judge Pauses FTC’s Ban on Employment Noncompetes

The FTC rule banning post-employment noncompetes was published in the Federal Register on May 7, which means the rule will take effect on September 4, 2024, unless pending lawsuits to void the rule are successful.

Despite considerable uncertainty around when, or even whether, the rule will apply, employers should prepare now so as not to be caught flatfooted. The first step is to understand the rule’s parameters and potential impact on your business. Our FAQs guide you through the intricacies of the rule and the steps you should take while waiting for the lawsuits challenging the rule to be resolved.

Application of the Rule to Workers

1. Does the rule apply to B2B noncompetes?

No, the FTC rule does not apply to business-to-business (B2B) noncompetes. Instead, existing federal antitrust laws should continue to be considered when evaluating B2B noncompetes.

2. Does the rule apply to all workers?

No, there are limited exceptions. First, the rule does not invalidate existing noncompete agreements (i.e. agreements entered into on or before the effective date of September 4, 2024) with “senior executives.” After that date, new noncompetes with all US employees will be prohibited.

“Senior executive” means a worker who received “total annual compensation” of at least $151,164 in the preceding year (or the equivalent amount when annualized if the worker was employed during only part of the year) and who is in a “policy-making position.”

  • “Total annual compensation” may include salary, commissions, nondiscretionary bonuses, and other nondiscretionary compensation earned during the preceding year, but does not include the cost of, or contributions to, fringe benefit programs.
  • Those in a “policy-making position” may include the President, CEO or equivalent, or others with “policy-making authority,” meaning “final authority to make policy decisions that control significant aspects of a business entity or common enterprise.” In the Supplementary Information to the rule (the FTC’s commentary on the rule), the Commission notes “many executives in what is often called the ‘C-suite’ will likely be senior executives if they are making decisions that have a significant impact on the business, such as important policies that affect most or all of the business. Partners in a business, such as physician partners of an independent physician practice, would also generally qualify as senior executives under the duties prong, assuming the partners have authority to make policy decisions about the business.”

Second, the rule does not apply to workers outside of the United States. See FAQ 11 below.Continue Reading Thirteen Things You Didn’t Know About the FTC’s Noncompete Ban and Five Steps to Prepare Now in Case it Takes Effect

US legislators and regulators are unleashing new compliance requirements for global equity programs at a dizzying pace and many companies are struggling to keep up. Global equity programs remain essential to compete for and retain top talent, but are also quite complex to structure and manage due to rapidly shifting laws and regulations around the…

California’s regulators have made employment noncompetes (and knowing which employees are bound by them and how!) a key compliance item.

Effective January 1, 2024, AB 1076 amends Section 16600 of the state’s Business and Professions Code to “void the application of any noncompete agreement in an employment context, or any noncompete clause in an employment…

Special thanks to co-authors Thomas Asmar, Victor Flores, Denise Glagau, Christopher Guldberg, Jen Kirk, Maura Ann McBreen, Lindsay Minnis, Kela Shang, Aimee Soodan and Brian Wydajewski.

As many readers likely know, last fall California doubled-down on the state’s hostility to noncompete agreements. Assembly Bill 1076 codified the landmark 2008 Edward v. Arthur Andersen decision that invalidated all employment noncompetes, including narrowly tailored ones, unless they satisfy a statutory exception.
   
AB 1076 also added new Business & Professions Code §16600.1, requiring California employers to notify current (and certain former) employees that any noncompete agreement or clause to which they may be subject is void (unless it falls within one of the limited statutory exceptions).

Individualized written notice must be sent by February 14, 2024 or significant penalties may apply.Continue Reading Don’t Miss California’s Noncompete Notice Requirement (Deadline 2/14/24) |Review Equity Award Agreements & Other Employment-Related Contracts ASAP

Special thanks to Geoff Martin and Maria Piontkovska.

On March 3, 2023, the Criminal Division of the United States Department of Justice (“DOJ”) published details of a three year Pilot Program Regarding Compensation Incentives and Clawbacks (the “Compensation Pilot Program”). The Compensation Pilot Program is effective March 15, 2023 and from that date it will be applicable to all corporate criminal matters handled by the DOJ Criminal Division. At the same time, DOJ also updated its Evaluation of Corporate Compliance Programs guidance document to reflect the criteria introduced by the Compensation Pilot Program, among other updates.
 
Background and Objectives of the Compensation Pilot Program

The concept of incentivizing corporate compliance by structuring compensation programs to reward compliant behaviors and punish non-compliant ones, is nothing new. For example, prior editions of the Evaluation of Corporate Compliance Programs addressed appropriate incentives for company management and executives to promote good governance and compliance, and expectations about the consistent application of discipline against employees found to be involved in misconduct.

However, in a September 2022 memo to DOJ prosecutors titled: “Further Revisions to Corporate Criminal Enforcement Policies Following Discussions with Corporate Crime Advisory Group“, Deputy Attorney General Lisa Monaco indicated that DOJ intended to go further on this particular topic. In the memo, Monaco indicated that DOJ would expect companies to design compensation structures not only to incentivize and reward good compliance practices, but also to financially penalize individual employees found to have been engaged in misconduct, including by clawing back compensation after the fact.

DOJ’s objective in this initiative is to encourage companies to redistribute some of the cost and penalties associated with individuals’ criminal conduct away from the company (and its shareholders) and onto the individuals themselves. Because misconduct is often discovered after the fact, measures that enable retroactive discipline and clawback of compensation already paid, are of particular importance to DOJ. These measures also reinforce DOJ’s continued focus on individual accountability which has been another of DOJ’s recent areas of focus in addressing corporate criminal matters.

Six months after Monaco’s memo, the Compensation Pilot Program now puts concrete DOJ policy in place to implement those objectives. At the end of the three year pilot period, DOJ will determine whether the Compensation Pilot Program will be extended or modified. If it is deemed a success, we can expect the Compensation Pilot Program to be fully adopted by DOJ. Continue Reading Practical Considerations When Addressing New DOJ Compensation Incentives and Clawbacks Program

Together we navigated operational challenges caused by the pandemic, and together we will weather this. What follows is information and practical advice for employers concerned with satisfying their payroll obligations in the near term in the face of their bank falling into receivership.

  • Identify the “universe” of employment-related expenses. This will include payroll, benefits, bonus and commission comp, insurance, and severance obligations.
  • Understand that liability for unpaid wages can be significant. For example, liability in California includes:
    • Back payment of any unpaid wage amounts that employees prove they were legally entitled to.
    • Interest of up to 10% of the unpaid wages.
    • Penalties for late payment of wages equal to: (i) $100 for the first violation; and (ii) for each subsequent violation, $200 plus 25% of the amount unlawfully withheld. Penalties may apply for each pay period that wages remain unpaid.
    • If any employees leave the company after the payday date, the company can be liable for waiting time penalties for late payment of final wages. Waiting time penalties are equal to 1 day’s wages for each day an employee’s final wages are unpaid, up to a maximum penalty of 30 days’ wages.
    • Companies may be required to pay employees’ attorney’s fees if the employees prevail in litigation.
    • Criminal liability for wage theft if the act is “intentional.” Felony cases are punishable by up to 3 years in prison.  

Continue Reading Navigating Fallout From a Bank Receivership | Practical Tips for US Employers