Question:
Dear Advice Guy,
I saw an article about the new legislation prohibiting non-competes. We do have non-compete language in our manager contracts prohibiting them from working as a manager in a similar operation in the same city for six months if they resign. Should we remove this from our contracts? And what about our existing managers?
– Owner
Answer:
Non-compete clauses, especially for line-level employees and middle management, have been a controversial topic in the restaurant industry. Some operators like them because they feel it helps discourage employees from resigning over a “grass is greener” approach; may help protect trade secrets like recipes and standard operating procedures; and helps discourage poaching among competitors. Proponents say it is used sparingly and typically only among senior management in the restaurant industry.Critics of the practice say it is widespread even among line-level employees, keeps wages artificially low and traps workers in suboptimal situations.
As you mention in your question, the Federal Trade Commission (FTC) announced last month that they will be banning non-competes. While it will be challenged in the courts, my advice is to prepare yourself as best you can so you are ready if the rule takes effect as planned on Sept. 4. Risa B. Boerner, partner at Fisher Phillips says, “[A]fter that date, with limited exceptions, non-competes will not be enforceable. With respect to your question about managers, if the Rule takes effect and is not enjoined, you will not be able to ask them to sign any non-competes after the effective date of the Rule, and you should remove that provision from agreements you ask them to sign after the effective date.” Boerner adds, “With respect to existing agreements, if your managers don’t have final policy-making authority for your business, in addition to receiving at least $151,164 in total annual compensation, they won’t qualify as “senior executives” and you won’t be able to enforce their agreements after the Rule takes effect. You would also be required to provide a notice to anyone who signed a non-compete clause who is not subject to one of the Rule’s exceptions telling them that their non-compete clause will not be, and cannot legally be, enforced against them. The notice must be provided no later than the effective date of the Rule.”
As always, this column is not legal advice. Check with your attorney and restaurant association for the latest guidance for your situation.
A more complete explanation on complying with the rule here.