The Federal Trade Commission (FTC) finalized a rule that will ban noncompete agreements from being included in employment agreements. Several lawsuits have been filed challenging the rule. The Equal Employment Opportunity Commission (EEOC) issued updated guidance on harassment in the workplace. The United States Supreme Court issued a unanimous decision that workers for a bakery who picked up and distributed products were included in the exemption for transportation workers contained in the Federal Arbitration Act.
FTC Finalizes Noncompete Rule – The Federal Trade Commission (FTC) finalized a rule that will ban noncompete clauses from being included in employment agreements. The rule, which will become effective on September 4th, includes a comprehensive ban on new noncompete agreements. The Commission determined that noncompete agreements constitute an unfair method of competition in violation of Section 5 of the Federal Trade Commission Act. “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” said FTC Chair Lina M. Khan.
Existing noncompete agreements would be unenforceable after the effective date, with the exception of senior executives. For senior executives, existing noncompete agreements would remain in effect. The rule defines senior executives, which the FTC estimates is less than 1% of workers as those who earn more than $151,164 per year and are in a policy making position.
The FTC believes that noncompete agreements, which impact an estimated 30 million workers, “impose contractual conditions that prevent workers from taking a new job or starting a new business.” The FTC estimates that this rule will result in $400 - $488 billion in increased worker wages over the next decade, reduced health care costs of $74 - $194 billion, and a 2.7% increase in the rate of new business creation, and a rise in innovation, resulting in an average of 17,000 – 29,000 more patents each year. As alternatives to noncompete agreements, the FTC noted that trade secret laws and non-disclosure agreements provide employers with the means to protect information.
Employers will need to provide notice to workers that existing noncompete agreements will not be enforced against them. To aid with compliance, the FTC included model language in the final rule that employers can use to communicate to workers.
Three lawsuits have been filed challenging the FTC’s rule. The legal challenges claim in part that the FTC lacked the authority to ban noncompete clauses and that the Commission acted arbitrarily and capriciously in issuing the rule. Two of the lawsuits, Ryan LLC v. Federal Trade Commission and Chamber of Commerce v. Federal Trade Commission were filed in U.S. District Courts in Texas. The third lawsuit, ATS Tree Services v. Federal Trade Commission was filed in the U.S. District Court for the Eastern District of Pennsylvania.
EEOC Issues Guidance on Workplace Harassment - The U.S. Equal Employment Opportunity Commission (EEOC) published updated guidance on harassment in the workplace. The “Enforcement Guidance on Harassment in the Workplace” according to the EEOC, is designed to be a resource that will assist employers in creating respectful workplaces. “Harassment, both in-person and online, remains a serious issue in America’s workplaces. The EEOC’s updated guidance on harassment is a comprehensive resource that brings together best practices for preventing and remedying harassment and clarifies recent developments in the law,” said EEOC Chair Charlotte A. Burrows. Between fiscal years 2016 and 2023, the EEOC reported that more than a third of all discrimination charges filed with the EEOC included a harassment allegation based on race, sex, disability, or another characteristic.
The EEOC noted that the guidance includes over 70 examples illustrating unlawful harassment. It also addresses the increase of virtual work environments and the growing impact of digital technology and social media. The guidance includes separate sections on covered bases and causation, harassment resulting in discrimination with respect to a term condition or privilege of employment, liability, and systemic harassment.
For harassment to violate the law, the EEOC declared it must involve a change to the victim’s employment or create a hostile work environment. The guidance states that a hostile work environment exists when “harassment is so severe or frequent that a reasonable person in the employee’s position would find the situation to be abusive” and each claim must take into consideration all of the circumstances. The EEOC recommends that employers have an anti-harassment policy, a procedure that employees can use to report harassment, provide regular training to employees about the policy and complaint process, and ensure that the policy is being followed. When employers receive a harassment complaint, they should investigate and if substantiated, take corrective action. The guidance cautions employers from retaliating against employees or applicants if they file a harassment complaint or participate in an investigation, hearing, or other proceeding.
Bakery Workers Exempt from Arbitration – By unanimous decision, the United States Supreme Court ruled that workers who picked up and distributed bakery products fell within the exception contained in the Federal Arbitration Act (FAA) for those workers who are “engaged in foreign or interstate commerce.” Chief Justice Roberts who wrote the decision for the Supreme Court in the case of Neal Bissonette v. LePage Bakeries Park St., LLC concluded that “A transportation worker need not work in the transportation industry to fall within the exemption from the FAA provided by §1 of the Act.”
Neal Bissonette and Tyler Wojnarowski were franchisees who owned the rights to distribute Flowers Foods products in certain parts of Connecticut. Flowers Foods baked the products and Bissonnette and Wojnarowski picked them up and distributed them to local shops. To purchase the rights to their territories, Bissonnette and Wojnarowski signed Distributor Agreements with Flowers Foods. Those contracts incorporated separate Arbitration Agreements that required the arbitration of any disputes under the FAA. In 2019, they brought a class action claiming that Flowers Foods had underpaid them in violation of state and federal law, taken unlawful deductions from their wages and failed to pay them overtime. Flowers foods moved to compel arbitration while Bissonette and Wojnarowski contended they fell within the FAA exception for workers engaged in interstate commerce. The District Court and the Second Circuit Court of Appeals found that Bissonette and Wojnarowski had to arbitrate their claims. Due to a split among the appellate courts, the Supreme Court agreed to review the case.
The FAA contains an exception specifying that “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” In interpreting this provision, Justice Roberts believed that it is the work performed rather than for whom it is done that is the determinative factor. He stated that any worker who is exempt from the FAA arbitration requirement “must at least play a direct and necessary role in the free flow of goods across borders.”
Neil Reichenberg is the former executive director of the International Public Management Association for Human Resources. He is an attorney, a frequent writer and speaker on public policy and human resource issues and was an adjunct faculty member at George Mason University. For questions or additional information, contact Reichenberg at neilreichenberg@yahoo.com.