The Federal Trade Commission’s proposed ban on non-compete agreements could have significant effects on home care. HCAOA has been watching this issue closely and will submit extensive comments to the Commission later today. The full comment and analysis of HCAOA’s response will be shared next week in the Home Care Insider.
Following a webinar Littler held last week, HCAOA approached the law firm to help unpack the issues surrounding the proposed ban for home care providers. HCAOA thanks Littler attorneys Jim Paretti, Michael Lotito, Joshua Vaughn and their team for responding to our questions.
HCAOA – Please share the background and details of this issue.
Littler - In January of this year, the Federal Trade Commission proposed a regulation that would effectively ban all non-competition agreements between employers and employees. The proposed ban applies across-the-board, whether the worker is a lower-wage front line employee, or a senior executive, and irrespective of whether the employee is paid additional compensation for entering into a non-compete.
The only exception the rule would allow is a non-compete agreement in connection with the sale of a business, so long as the individual who is subject to the non-compete owns at least 25% of the business entity. The ban would apply to future non-compete agreements, but also require employers to retroactively rescind existing non-competes and inform employees that they are no longer bound by them.
HCAOA - The FTC has released a Notice of Proposed Rulemaking (NPRM) that seeks to ban employers from imposing or enforcing non-compete clauses on workers. What has changed since the proposed rule was released?
Littler - Little has changed since the proposed rule was released—yet. The 90-day public comment period on the rule is scheduled to close on April 19, 2023; as of this writing, the agency has already received more than 22,500 comments on its proposal. HCAOA has been working with Littler on a comment urging the Commission to recognize the unique nature of home care and ensure that any final rule addresses these concerns.
HCAOA - How will this impact home care agencies and their employees?
Littler - Notably, the proposed rule goes beyond traditional non-competes and would sweep under its coverage any provision that the FTC determines functions as a non-compete. The FTC advises that while non-disclosure agreements and customer non-solicit agreements generally do not prevent a worker from seeking or accepting employment, if they are too broad, they would be covered within its definition of a non-compete clause.
The proposed rule cites two examples of de facto non-compete clauses: (1) a non-disclosure agreement “that is written so broadly that it effectively precludes the worker from working in the same field” when they leave employment with their current employer; and (2) a contractual term that requires a worker to pay back money spent for training costs if their employment terminates within a certain period, if the “required payment is not reasonably related to the costs the employer incurred for training the worker.”
The proposal makes clear that these two examples are illustrative only, and that under its “functional analysis” many other clauses that could be viewed as limiting an employee’s ability to change jobs may be prohibited as de facto non-competes.
It is not clear whether and how these final rules will impact certain agreements that are common in the home care industry.
HCAOA - What else should home care agency owners know? Should they take any action at this time?
Littler - The FTC will take time to review the comments. We currently expect the FTC to publish a final regulation either before the end of 2023 or in early 2024. A final rule may be almost identical to that which was proposed, or it may differ in signification respects (e.g., its scope or application). It is almost certain that upon issuance, the final rule will be subject to legal challenge in federal court.
Until a final rule is published (and any legal challenges resolved), employers may continue to use non-compete agreements and no changes are needed. However, be mindful that at some point in the future these agreements might be voided.
In the interim we recommend that employers continue to monitor developments so as to know when a final rule is issued, any changes between the proposed and final rule, and when any final rule is scheduled to become effective.
HCAOA thanks the Littler team again for their contribution to this article. HCAOA will continue to monitor the FTC proposed ban on non-compete agreements and keep members updated.