New York Securities Fraud Lawyers Blog
As the summer winds down and employees begin contemplating transitions to a new employer, financial professionals must be aware of the rules, procedures, and contracts impacting a potential transition to a new firm. To help keep financial professionals apprised of important considerations when changing employers, Malecki Law, one of New York’s experienced financial services employment law firms, created the Post Summer Transitions blog series. This blog will focus on one of the most important considerations impacting most transitioning employees regardless of the industry: non-competition agreements.
On August 20, 2024, Judge Ada Brown, sitting in the United States District Court for the Northern District of Texas, Dallas Division, issued an opinion and order setting aside the Federal Trade Commission’s (the FTC) recently implemented Non-Compete Rule, which was set to effectively outlaw non-competition agreements across the country in early September 2024. Judge Brown’s ruling is sure to impact employees working in nearly every industry and cause the FTC to rethink its approach to curbing unfair methods of competition in the context of employment relationships.
On April 23, 2024, the FTC announced a new, final rule banning most non-competition agreements nationwide. In announcing the new rule, FTC Chair Lina M. Khan explained that “noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism.” Further, the FTC expected the new rule to generate tens of thousands of new patents and thousands of new businesses each year, as well as allow the average employee to earn additional compensation amounting to more than $500 per year. The Non-Compete Rule was slated to take effect on September 4, 2024. If you are a financial professional who is experiencing non-competition issues with a previous employer, you should consult a seasoned Securities Employment lawyer, like the ones at NYC’s Malecki Law.
So, what exactly is a non-competition agreement? Generally, a non-competition agreement bars an employee from engaging in conduct that would increase competition for their previous employer. In other words, non-competition agreements prevent an employee from becoming employed with a competitor of the prior employer. Non-competition agreements often (and should) include time limitations (i.e., the agreement is in force for a certain period of time) and geographical limitations (i.e., the employee cannot compete within 25 miles of the employer). Sometimes, a provision that is too broad can be challenged in a court or arbitration, as well as restricted to a reasonable time and location.
It is important to highlight that some states have banned non-competition agreements as a matter of public policy, so it is important for financial professionals to consult legal counsel, like Malecki Law in Downtown Manhattan, to discern whether they are required to comply with a non-competition agreement under the laws of the state in which they were previously employed.
To avoid breaching a non-competition agreement when transitioning to a new firm, brokers and advisors should consider:
- Reviewing existing agreements with their previous employer. Non-competition clauses are usually incorporated into employment agreements, so financial professionals should be familiar with the duties and obligations they must abide by pursuant to their existing employment agreement.
- Reviewing laws and regulations in the state in which they are employed to determine whether non-competition agreements are enforceable in their state. Some states have enacted laws the prevent employers from enforcing non-competition agreements, so financial professionals should be aware of the non-compete related rules, if any, in their state.
- Staying up to date with new rules implemented by the FTC pertaining to non-competition agreements. In light of Judge Brown’s ruling, the FTC is sure to revisit its Non-Compete Rule in the hopes of implementing a new version of the rule that can withstand judicial scrutiny.
There are a host of considerations that financial professionals must take into account when considering a transition to a new firm. Amongst these considerations, non-competition agreements pose the threat of completely derailing a broker’s or an advisor’s new employment relationship. If you are a financial professional considering a move to a new financial institution, you should speak with a knowledgeable non-competition attorney, like the attorneys at Malecki Law.