Ted Jenkin signed a non-compete agreement when he sold his financial advisory practice in 2019.
Source: Ted Jenkin
When certified financial planner Ted Jenkin sold his financial consulting practice in 2019, he signed a non-solicitation and non-compete agreement that barred him from taking clients out of the firm for five years — or taking another job in the industry across the country.
“When you sell a business, you’re mostly selling customers or ideas, but if you can’t do the work in that business, it doesn’t make any pragmatic sense at all,” he said. “It’s crazy.”
Bound by that clause, Jenkin, who is a member of CNBC’s Financial Advisor Council, remained as an employee until late last year.
“Now I can honor the contract or do something in the industry and we’re going to have a lawsuit,” he said.
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That is, unless a federal regulator prevails.
Recently, the U.S. Federal Trade Commission proposed a new rule that would almost universally ban the use of non-compete clauses in employee contracts because, the agency says, they suppress wages, stifle innovation and prevent entrepreneurs from starting new businesses.
The proposed rule would require companies with existing non-compete agreements to lift them and notify current and former employees that they have been terminated. In that case, Jenkin would be free to pursue another occupation.
“I would be the first person to go back to work,” Jenkin said. “I wouldn’t be afraid to get into a lawsuit just because I work at my job.”
Nearly a fifth of US workers sign ‘non-compete agreements’
Non-competition clauses are used in industries such as finance, but increasingly in many other occupations, according to the FTC, “from hairdressers and warehouse workers to doctors and business owners”.
Most of the time, there’s little wiggle room: less than 10% of workers are able to negotiate these clauses, and 93% of them read and sign them anyway, according to the National Employment Law Project.
It is estimated that more than 30 million workers – or about 18% of the US workforce – are bound by such agreements.
“Non-compete clauses prevent workers from freely moving jobs, deprive them of higher wages and better working conditions, and deprive companies of a talent pool they need to build and expand,” FTC Chair Lina Khan said in a statement.
If this practice is stopped, wages could increase by nearly $300 billion a year, according to the FTC.
“Non-competition clauses are an important instrument”
But several steps remain before the proposed regulation becomes effective, including the “inevitable litigation” challenging the FTC’s authority, said Michael Schmidt, a labor and labor law attorney at Cozen O’Connor in New York.
“The attempt to prohibit non-compete clauses in all employment situations overturns established state laws that have long governed their use and ignores the fact that non-compete agreements, when applied appropriately, are an important tool for promoting innovation and safeguarding competition,” Sean said Heather, Senior Vice President of the US Chamber of Commerce for International Regulatory Affairs and Antitrust Law.
An outright ban is “manifestly unlawful,” Heather said. “Congress has never given the FTC anywhere near the authority it would need to promulgate such a competition rule.”
When things get stuck in the court system, Schmidt says the rulemaking process could take up to a year or even longer.
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