FTC Ruling

[Beeg_Dawg]

Mick,

How long before a federal judge freezes the FTC ruling on non-compete agreements?

Looks like bureaucratic over-reach.

 

[Hurlburt88]

Darn big deal to me, so I am also quite curious for thoughts on this.  Combined with pro-union policies, some setbacks for efficiently running a business

[Mick1]

Good question. It’s funny…California had outlawed non-competes for non-business owners (essentially salaried employees) starting in 1982 or thereabouts. The substantive case law involved two accountants in San Jose, a tax manager and an audit manager for a very large regional accounting firm, Moss Adams. In accounting, the managers are non-owners, but do the bulk of the day-to-day work until they become partners.

These two accountants weren’t being promoted fast enough (in their eyes), so they left and formed their own firm, essentially causing the local office of the regional firm to close down. They didn’t solicit business (although it was both legal and not considered against California’s CPA Society ethics to do so at the time, and 10 years later would be expressly approved by the USSC), but they sent announcements to all their contacts, including their former clients. Their former employers sued for breach of non-compete. A friend of mine who had this case in law school said it was studied as an example in which plaintiffs’ counsel did just about everything wrong.

Moss, Adams Co. v. Shilling, 179 Cal.App.3d 124 | Casetext Search + Citator

Gut feel…I think non-competes for non-owners won’t survive. The gist is that it’s an unnecessary, unlawful prevention of employment. In essence, the employees are no longer being paid, therefore they have no obligation to their former employer. I think federal judges are likely to back the employees, following California’s example.

Also, I think the labor component pendulum is likely to start swinging back. Ten years ago, I was a CXO at the largest labor law firm in the country, and the labor attorneys there held a summit call, the subject of which was how to pivot, given that they had done their job too well, and had more or less crushed private labor unions. I believe that work is going to return.

Three interesting follow-up notes:

1. Those two accountants learned their lesson. When they hired their first substantive manager, they gave him a very tiny percentage of the firm’s equity, making him a (very) minor shareholder. When he became disgruntled — as most managers do, who work 2,500 to 3,000 hours annually — he left to form his own firm. And his former employers successfully sued him because he was, technically, an owner of the business.
2. Their accounting firm was extraordinarily successful and profitable. They sold out 16 years later to a second-tier national firm, having grown to 40 employees.
3. Moss Adams returned to San Jose with a vengeance. They are the 14th largest firm in the country and they have a large San Jose office,

Audaces fortuna iuvat

[Author]

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