Noncompetes are now banned, nation-wide

Courts, especially Virginia courts, have long disfavored noncompetes, often ruling them unenforceable, especially when overbroad in terms of duration, scope and geographic reach.  But now the Federal Trade Comission (FTC) has one-upped the courts by banning noncompetes nation-wide, with retroactive effect. 

The final rule provides that it is an, "unfair method of competition—and therefore a violation of section 5 (of the FTC Act)—for persons to, among other things, enter into non-compete clauses (“non-competes”) with workers on or after the final rule’s effective date. With respect to existing non-competes—i.e., non-competes entered into before the effective date—the final rule adopts a different approach for senior executives than for other workers. For senior executives, existing non-competes can remain in force, while existing non-competes with other workers are not enforceable after the effective date." (FTC Rule Summary, 23 April 2024)

Let's unpack this a bit. 

The Noncompete Ban Applies to More than just Noncompetes

The term "noncompete" is defined more broadly than you think, and even encompasses poorly constructed NDAs and other restrictive covenants, "The term non-compete includes...a non-disclosure agreement between an employer and a worker that is written so broadly that it effectively precludes the worker from working in the same field after the conclusion of the worker’s employment with the employer." (Section 910.1).

Business owners need be wary of the restrictions they place in their contracts.  And employees/ICs should have their offer letters, employment contracts, and IC agreements reviewed by GuideOn Legal Services, prior to execution.

It's Retroactive - Except for "Senior Executives"

Except for a very limited "senior executive" exception, the FTC rule applies retroactively, i.e., your existing noncompete will be deemed null and void once the rule takes effect.  

And the exception only applies to a very small subset of "senior" executives. Under Section 910.1, a "senior executive" is a person who was (1) in a policy-making position, and (2) had total annualized compensation of $151,164 or more. "Policy making position" is more narrowly defined than you might guess and applies only to, "a business entity’s president, chief executive officer or the equivalent, any other officer of a business entity who has policy-making authority."  That's pretty limited. 

Making it even more narrow in scope,  "Policy-making authority" means, "final authority to make policy decisions that control significant aspects of a business entity or common enterprise and does not include authority limited to advising or exerting influence over such policy decisions or having final authority to make policy decisions for only a subsidiary of or affiliate of a common  enterprise." Simply put, it only applies to those with the authority to make the big decisions at the company.

So if you are a division manager or VP who is not an officer, the exeption to the ban does not apply to you, and your existing noncompete will be void.

Don't forget, the "senior executive" exception only applies to existing noncompetes.  Newly hired senior executives are not subject to noncompetes.

Doesn't Apply to Sale of Business Noncompetes

If you sold your business and accepted a non-compete in exchange, the ban doesn't apply and your noncompete restriction remains valid.

"(a) Bona fide sales of business. The requirements of this part 910 shall not apply to a noncompete clause that is entered into by a person pursuant to a bona fide sale of a business entity, of the person’s ownership interest in a business entity, or of all or substantially all of a business entity’s operating assets." (Section 910.3).  In the originally proposed rule, there were thresholds for this exception, e.g. it only applies if you had a 25% or greater ownership interest in the sold entity, but those caveats were knocked out by industry during the public comment period and will not apply.  So, bottom line, noncompetes still apply to sellers of business interests.

Not all hope is lost if you are in this situation (see "Take Action Now" below)

Companies Must Notify Those Subject to Noncompetes

Under the new rule, employers must provide notice to those affected by noncompetes that they are no longer enforceable.  To facilitate employer compliance, the final rule includes model language that satisfies this notice requirement (Section 910.2(b)(4)),

"A new rule by the FTC makes it unlawful for us to enforce a non-compete cluase.  As of (est. 1 Sep 2024) we will not enforce any non-copet clause against you.  This means you may accept a job with any company or any person - even if they compete with us; you may run your own business - even if it competes with us; and you may compete with us following your employment...." 

It doesn't get clearer than that...in case you were wondering whether this rule had teeth or not.

Effective August 2024 

The final rule goes into effect 120 days after it is recorded in the Federal Register.  So expect it to go into effect in late August or early September 2024.

Take Action Now!

If your are business owner, your NDAs and non-solicitation agreements must be carefully re-crafted to avoid being deemed non-competes, so that the baby doesn't get thrown out with the bathwater (even if you don't like babies).  And, perhaps more importantly, you will have to look for alternate methods of protecting your business interests and property outside of these traditional means.  So, before you send out that next employment agreement, IC Agreement, NDA, non-solicitation, or offer letter, call me for a review (703-397-7490; jack.grimes@gls.law).  We'll take care of your legal needs while you focus on growing the business.

If you are subject to an existing noncompete and do not fall under one of the exceptions ("senior executive" or sale of a business interest), contact me at (703) 397-7490 or jack.grimes@gls.law to review your employment or IC agreement.  Over the years, I've been very successful in pushing back on noncompetes for my clients, making them as limited and as narrowly tailored as possible.  It would now be my great pleasure to assist you in the removal and voidance of your noncompete, giving you the peace of mind to pursue whatever career path you choose, without restriction.

And even if you do fall under the "senior executive" or business sale exceptions to the ban (i.e., your noncompete stands), there is still hope.  See my article on the unenforceability of noncompetes that are overbroad in duration, scope, or reach here ("Noncompetes May Be on the Way Out" by Jack Grimes, May 2023).  After you read this article, contact me so I can review your noncompete for enforceability.

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The author is GuideOn Legal Services (GLS) founder Jack Grimes, a military veteran, former Intelligence Community executive, small business owner, and JAG Corps Reserve Officer with over 20 years of experience. He is among a limited number of attorneys in the country with both an LL.M. (Master of Laws) and first-hand experience running small and large businesses.  GLS also provides estate planning services through its Live Long, End Strong®  full life-cycle approach.  It starts with the end in mind, and then builds a lifetime and legacy plan,  culminating in the peace of mind that comes with protecting your family's future by  preserving assets from taxes, probate costs, legal issues, and unnecessary financial risk. 

The End of the Non Compete Era?

Whenever I talk with my small business clients (business owners, independent contractors, employees) about non-competes, I give them the same speech.  In order for a non-compete to be effective or even enforceable, it needs to pass the reasonableness test.  First, it must be reasonable in scope (e.g., you can't ban someone from an entire industry, but you can restrict them from a specific business segment, customer space, or other narrowly defined area). Second, the duration must be reasonable (six months to one year is reasonable for an employee, a little longer for an IC, and even longer for a business entity subcontractor). Last, the geographical reach must be reasonable (U.S.-wide bans are a no-go, while restriction within a certain milage radius can make sense). And guess what?  If any one of these factors is unreasonable, courts in Virginia will rule the entire non-compete unenforceable.  That's right, it won't get revised to make it workable - and the restricted employee/IC is now freer than Andy Dufresne in Shawshank Redemption.

In any case, my days of speech-making on this topic may be coming to an end. This past January, the FTC proferred a rule banning non-competes, and the period for public comment has ended. We now await the final rule, in either its original or public comment-modified form. 

And don't take this lightly.  Section 910.2(b)(1) of the rule reads, ".....it is an unfair method of competition for an employer to maintain with a worker a non-compete clause, (therefore) an employer that entered into a non-compete clause with a worker prior to the compliance date must rescind the non-compete clause no later than the compliance date.  No, that's not a misprint. If this rule goes live, it won't just prohibit future non-competes, it will also rescind existing non-competes.  But wait, it gets even better.  The term "non-compete" will be defined more broadly than you think, and may even encompass poorly constructed NDAs, "The term non-compete includes...a non-disclosure agreement between an employer and a worker that is written so broadly that it effectively precludes the worker from working in the same field after the conclusion of the worker’s employment with the employer." (910.1(b)(2)(i)).

I suspect an impetus for the FTC's proposed ban is our nation's ever-expanding digital landscape. In such a world, it becomes increasingly difficult to craft reasonable non-competes when so many workers and employers have nation-wide, online business models. Not to mention that the post-COVID, work-from-home, labor force extends the reach of business and employment opportunities even further.

Where Do We Go From Here?

Now I know what you're thinking, "Jack, this is a blog, not a legal treatise, so get to the point." Okay, okay, here it is: Now is the time to start planning for the post non-compete world.  Remember, this is going to affect both new and existing non-competes.  NDAs and non-solicitation agreements will have to be carefully re-crafted to avoid being deemed non-competes, so that the baby doesn't get thrown out with the bathwater (even if you don't like babies).  And, perhaps more importantly, we will have to look for alternate methods of protecting business interests and property outside of these traditional means.  So, before you send out that next IC Agreement, NDA, non-solicitation, or offer letter, call me for a review (703-397-7490; jack.grimes@gls.law) so we can take care of your legal needs while you focus on growing the business.

________________________________

The author is GuideOn Legal Services (GLS) founder Jack Grimes, a military veteran, former Intelligence Community executive, small business owner, and JAG Corps Reserve Officer with over 20 years of experience in estate planning. He is among a limited number of attorneys in the country with an LL.M. (Master of Laws) in Estate Planning and Elder Law.  The GLS motto  Live Long, End Strong® epitomizes the full life-cycle approach our firm takes to estate planning.  It starts with the end in mind, and then builds a lifetime and legacy plan,  culminating in the peace of mind that comes with protecting your family's future by  preserving assets from taxes, probate costs, legal issues, and unnecessary financial risk. 

Digital Assets and Estate Planning

The law of wills, trusts, and estates is slow to change. That’s why most estate planners will advise you to review your plan every 3-5 years, or upon a significant life event like getting married or having kids.  One glaring exception to this rule is the area of digital assets and cryptocurrency planning. Here, change is occurring so rapidly it can be hard to keep up!  And the impacts of NOT keeping up can be significant (and not in a good way).

Fear not! Your favorite estate planning attorney (and I say that because I’m probably the only one you know) has a practical digital asset tip to share today that will either beef up your existing estate plan, or encourage you to get the ball rolling on one (here’s why you shouldn’t wait).

But first, let’s get a grip on what we are talking about here.

What the heck are digital assets anyway?

The term “digital assets” is a misnomer of sorts as we tend to think of assets as things of value.  But digital assets are quite the opposite. They have little-to-no value and are either administrative, data-based or sentimental. Examples include digital pictures (think iPhoto albums), family videos, social media accounts and posts, email, username/password information for online financial and other accounts, and even private keys for your cryptocurrency investments or NFTs (i.e., non-fungible tokens, often in the form of digital artwork),

Why would I want to grant access to my digital assets?

First, you may want certain family members, friends, or other loved ones to inherit or have access to digital items of sentimental value like your online digital photos/family videos, emails, and social media posts.

Second, in 40 years, when you kick the can, your lady bird deed michigan executor is going to need access to your online accounts in order to marshal your assets so they can be distributed to your loved ones. By having access to your online banking, investment, and email accounts, life will be much easier for your executor (who, remember, you blessed with this thankless job).

Third, digital life providers like Google, Facebook, and especially Apple are extremely resistant to granting access to a deceased user’s account, even to a spouse or children. There have been many cases of executors and/or loved ones trying to gain access to family pictures or other sentimental items only to be denied by these providers.  When such cases go to court, the digital life providers win because user privacy is protected in the Terms of Service (TOS). What are TOS? It's that contract no one reads, but everyone signs by checking a box when opening an iCloud, Facebook, Google, and other accounts.

Yeah, but my spouse (or whoever) has all my passwords anyway, am I good to go?

Nope. Without having your explicit, written, legal permission to access these accounts (and no, writing it on a napkin isn’t good enough), anyone who does so, even if they have your passwords, is committing a crime (see the Computer Fraud and Abuse Act of 1986, 18 USC §1030).  Are they going to get caught and go to jail? Probably not, but I wouldn’t want to risk it – especially when it’s easy to avoid.

This sounds complicated, is it?

Yes and no. 

How to fully integrate digital asset planning and protection is a bit complicated and is covered in my article “CYA – Cover Your (Digital) Assets,” which I encourage you to read with a nice cup of coffee to keep you awake.

But there is an easy, non-complicated, part, and that’s what I want to share with you today. No need for a lawyer, and you can get this part done in under 10 minutes.

Okay, Here it is: the Practical Tip I promised in the first paragraph

Under a pretty boring law called the Revised Uniform Fiduciary Access to Digital Assets Act – RUFADAA, the use of “online tools” by a testator to grant a fiduciary access to digital assets/accounts, trumps any conflicting statutory provisions, and even anything in the Testator’s will or other estate planning documents! An online tool is defined as any mechanism by which a digital life provider (Apple, Google, Facebook, etc) allows a user to grant access to a named person in the event of the user’s incapacity or death.

Many digital providers have implemented these online tools over the last few years, and the rest are planning to do so in the near future.

Please take advantage of this powerful tool right now. Take the next 10 minutes, log in to each of your major digital life provider accounts, and follow the instructions to name your legacy agent. 

I can’t provide the instructions here because they’ll just change over time, and then you’ll get mad at me when it doesn’t work. However, a simple Google search for the following online tools will get you where you need to go:

• Apple Legacy Contact
• Google Inactive Account Manager
• FaceBook Memorialization Settings
• Twitter and Instagram (still in the works – no online tool available yet)

Failing these “online tools”, the next best line of defense is to have digital asset clauses in your estate planning documents (wills, trusts, powers-of-attorney). 

If you don’t do any of this, your executor might still be able to rely on standard executor powers and tangible personal property clauses in your estate planning documents to deal with digital assets, but this does not always work. As mentioned above, many providers, especially Apple, will fight such attempts in the name of protecting a deceased user’s privacy.

One last thing - Cryptocurrency and Digital Assets

Please understand that cryptocurrencies and NFTs are not digital assets, under estate planning parlance, because they are assets with real (monetary) value. However, the private keys, PINs, and passwords that grant access to the crypto most certainly ARE digital assets. And your executor will need access to them in order to eventually marshal and distribute them to your loved ones in accordance with your will/trust. Note: the topic of how to distribute cryptocurrency via a will or trust is beyond the scope of this BLOG, but see our cryptocurrency practice area for more information. You may also be interested in our award-winning article on how to buy cryptocurrency the smart and safe way (okay, I was kidding about the award-winning part, but it's pretty good).

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The author is GuideOn Legal Services (GLS) founder Jack Grimes, a military veteran, former Intelligence Community executive, small business owner, and JAG Corps Reserve Officer with over 20 years of experience in estate planning. He is among a limited number of attorneys in the country with an LL.M. (Master of Laws) in Estate Planning and Elder Law. The GLS motto  Live Long, End Strong® epitomizes the full life-cycle approach our firm takes to estate planning.  It starts with the end in mind, and then builds a lifetime and legacy plan, culminating in the peace of mind that comes with protecting your family's future by preserving assets from taxes, probate costs, legal issues, and unnecessary financial risk.

Few, if any, individuals are equipped to pay for long-term care on an extended basis. Medicaid can step in to cover the cost, but the rules to qualify for the program are strict. If you want to preserve assets for your spouse, children, or other heirs, you need to work with an experienced Medicaid planning attorney.

How Medicaid Planning Works

Seniors are often shocked to learn that Medicare does not pay for nursing home costs except in extremely limited circumstances. Medicaid is the jointly funded federal and state program that will pick up the tab for long-term care when a person meets the specific income and asset eligibility requirements. Eligibility is determined independently in each state, although the basic standards are the same throughout the United States.

Medicaid planning is a highly personalized process dependent upon your age, health, family needs, income, and assets. In Virginia, Medicaid planning often involves:

• Creating trusts
• Managing asset transfers
• Converting countable assets into exempt assets
• Protecting a family home from Medicaid recovery efforts after the recipient has passed away
• Prepaying for funeral and burial costs
• Planning for the needs of the spouse who will remain at home
• Discussing how to manage your finances in the future to preserve eligibility for Medicaid services
• Navigating the appeals process if your initial application for Medicaid is denied

It is important to note that Virginia has a strict Medicaid look-back period of five years. Assets can’t be given to heirs or sold cheaply to qualify for the program. If the look-back period finds violations, the applicant becomes ineligible for long-term care assistance.

How GuideOn Legal Services Can Help

We know how hard you’ve worked to provide for yourself and your family. While GuideOn Legal Services is open to all clients, we are particularly adept in helping Veterans, law enforcement officers, first responders, and members of the intelligence community proactively plan for their long-term care needs so they can protect assets for their heirs. It's our way of giving back to those who serve. Call or complete the contact form below today to discuss how our Medicaid planning services can help you to Live Long, End Strong®