⛔️ RESTRICTIONS

The State of Non-Competes↗

A topic almost every attorneys is following closely is the state of non-competes and other “anti-competitive” restrictive covenants. Not familiar? Here’s a refresher and the current state of affairs.

That’s jump back to 2021.  President Biden issued an Executive Order on Promoting Competition in the American Economy. This Executive Order promised the administration’s enforcement of antitrust laws “to combat the excessive concentration of industry, the abuses of market power, and the harmful effects of monopoly.” One of the primary goals of this Executive Order was to “make it easier to change jobs and help raise wages by banning or limiting non-compete agreements.”

To that end, the Executive Order established 72 initiatives by multiple federal agencies to promote competition in the American economy. This Executive Order initiated an ongoing crackdown on anti-competitive activity.

THE FALL OF NON-COMPETES

Things started to heat up in early 2023. On January 5, 2023, the Federal Trade Commission announced a proposed a new rule that would ban employers from imposing non-competes on their workers. You read that right—— a ban on non-competes. In short, the proposed rule would make it illegal for an employer to:

• enter into or attempt to enter into a noncompete with a worker;
• maintain a noncompete with a worker; or
• represent to a worker, under certain circumstances, that the worker is subject to a noncompete.

Comments were then solicited from the public. Interestingly, as of the date of this article, no final rule has been published.

NATIONAL LABOR RELATIONS BOARD MEMO

Another agency joined the fray in May of 2023. The National Labor Relations Board General Counsel Jennifer Abruzzo announced via memo her opinion that enforcement of non-compete provisions in employment contracts and service agreements was a violation of the National Labor Relations Act (except in certain exceptional circumstances). Needless to say this was a big deal.

While ceding that in some cases non-compete provisions may be lawful if they restrict only managerial or ownership interests in competing business, Abruzzo argued that non-compete provisions are often too broad and thus “chill employees in the exercise of [NLRA] Section 7 rights when the provisions could reasonably be construed by employees to deny them the ability to quit or change jobs by cutting off their access to other employment opportunities.”

STATE LEGISLATION

While the FTC final rule (see above) has not been published/approved, some states already have bans on non-competes in place. Currently five states ban non-competes, California, Colorado, Minnesota, North Dakota and Oklahoma.

Expect more state level bans and a final FTC rule to come out soon.

💵 PAYMENT

Fees, Fees, Fees↗

One of the biggest fee fights we have ever seen has made it’s way into news. The plaintiff is a substantial derivative lawsuit against Tesla is seeking almost $230 million in attorneys fees. That’s not a joke. That’s not an exaggeration.

The backstory is this: The Police and Fire Retirement System of the City of Detroit sued Tesla’s board for overpaying themselves from 2017 to 2020.  We’re talking substantial sums of money. The case ended up settling for $735 million (cash & stock) and the directors forging three years of pay (worth $184 million).

The plaintiffs then sought attorneys fees, which they calculated based on a $919 million win for Tesla. The amount? $230 million (about 25% of the total settlement value). Tesla disputes that this the proper amount owed —— arguing that the actual benefit to Tesla is really $290 million. As a result, the attorneys fees would end up being a whopping 78% of the benefit. Using this calculation, the Tesla argues that attorneys fees should actually be closer to $63,530,830.

Will the settlement get derailed over this massive fee fight? We will see.