New Year, new non-compete clause- at least that’s the FTC’s take on the matter! With a new proposal on the table to ban non-compete agreements, nationwide, Hollywood hiring could be looking a lot more complex. Our entertainment lawyer on the ground, Brandon Blake of Blake & Wang P.A, has more.
New Proposed Rule
As of Jan 5 this year, the FTC proposed a rule to ban the standard non-compete, which prevents people from taking a job with a direct competitor for a period of time after leaving the company. The reasoning being that it creates an ‘unfair competition’ for the labor market, in turn holding down both wages and innovation. The rule as written would cover interns (unpaid) and contractors as well as standard contractual employees. It would also roll back existing non-compete agreements.
This concept may be familiar already to those in California, which already prevents the use of post-employment non-competes like this. In fact, it’s hardly a stretch to suggest it’s modeled off of the California law. Effectively, non-competes would be ruled out for all but the most limited circumstances.
Of course, this style of blanket non-compete is also rarely enforced by the court, especially on lower-wage workers, even if it is included in existing contracts. It’s usually trumped by the right to make a living wage and the encouragement of competition in business.
This does make it rather surprising that the same care is being bounced up to senior staff, however. Their doctrine of ‘substantial ownership’, typically defined as a 25% or more ownership interest before a non-compete can be enforced, should also be kept in mind.
While this sounds great so far, contracts with non-competes are sometimes used to ensure a stable workforce or protect ‘trade secrets’, often lost when upper management and executives depart for greener fields with competitors. We could expect new non-solicitation clauses to crop up, for one. This intersection would need to be substantially clarified for the law to take meaningful effect.
So far, the agreement skips NDAs and anything other than the broadest non-solicitation agreements. But without explicit guidance on fixed-term deals, we may see considerable employer hesitancy. For Hollywood, particular issues will arise from the inclusion of senior executives and other high skill/high pay workers, alongside the fixed-term contract matter. With these excluded, the impact would be minimal- but should they make it to the final ruling, a sweeping change to how contracts are formed in entertainment could occur.
The matter is currently open for public comment, until March 10th. The very broad language used in the proposed ruling, and the retroactive application, are likely to be major sticking points, and it’s a given that we will see Hollywood companies argue for clarification and change alike.