BREAKING DOWN NONCOMPETES

How employers should prepare for potential FTC ban of restrictive contractual agreements

A federal ban on noncompete agreements would either catalyze economic growth or stunt it, depending on one’s perspective.

Regardless of what comes of the Federal Trade Commission’s proposal to ban noncompete agreements, which have become ubiquitous in corporate America, employers in Michigan should be taking a hard look at their employment policies, said Zainab Hazimi, an attorney with Grand Rapid-based Warner Norcross + Judd who specializes in employment and supply chain litigation.

“We know that the tides are changing with respect to noncompete agreements, and we know that states have started to enact laws that are banning or restricting the reach of noncompetes,” Hazimi said.

e FTC’s proposal in January to ban the contractual clause, which binds employees from “competing” against employers for a set amount of time, sparked debate over the e cacy and ethics of the agreements.

Proponents say it helps employers protect trade secrets, while critics argue they handcu employees. e proposal, which accepted public comment until April 19, also sent some employers into panic mode over the potential rami cations of a ban.

Hazimi said she was ooded with inquiries from local employers, particularly automotive suppliers, which have been hit hard by labor and retention challenges from the manufacturing lines up to the C-suite. Companies in other sectors where noncompete agreements abound, such as tech and health care, are also watching closely.

“It would essentially undo approximately 30 million noncompete agreements that currently bind employees nationwide,” Hazimi said. “It is very broad, it’s unprecedented and it’s sweeping.” e potential ban is based on a preliminary nding that noncom- pete agreements are an unfair method of competition, therefore violating Section 5 of the Federal Trade Commission Act, according to the FTC.

Business groups don’t agree. e Michigan Chamber of Commerce said it is “strongly opposed” to the ban in a letter to the FTC dated April 19, Crain’s Grand Rapids Business reported.

“First, non-compete clauses are, and for more than a century have been, an issue of state law, not federal regulation,” the letter said.

In Michigan, a 2019 survey by the Economic Policy Institute revealed roughly 55 percent of the state’s more than 4 million workers were subject to noncompete agreements. Michigan is among the states that enforce the clause, though only to a certain extent. A federal ban would supersede inconsistent state laws.

Skymint, which primarily operates under the parent company of Green Peak Innovations Inc., remains in receivership. A dispute stems from Skymint’s $78 million acquisition of Birmingham-based competitor 3Fifteen Cannabis in April 2022.

SKYMINT