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New FTC Non-Compete Rule Affects NY Broadcasters


Since 2008, broadcasters in New York have been subject to the New York Labor laws that ban the use of post-term covenants not to compete in the broadcast business. Post-term covenants not to compete deal with restrictions that apply after the contract term has expired. For example, an employment contract stating that a person cannot work in the same job in the same markets for a period of 6 months after the contract expires is a typical “post-term” covenant not to compete.


Under New York law, the ban on post-term covenants not to compete does not apply to managerial positions. Moreover, you can enter into these agreements so long as they are not negotiated as part of the underlying employment contract. Also, the law does not prohibit other types of contractual restrictions such as a right of first refusal or confidentiality agreements.


The new FTC regulations clearly apply to broadcasting. In fact, the FTC’s decision makes specific reference to broadcast journalists.


The FTC rules adopted last week will change the nature and scope of covenants not to compete as they apply to broadcasters and all businesses throughout the United States. The FTC found that using covenants not to compete is an unfair method of competition. The FTC rule will not become effective for some time - 120 days after it is officially published. The following outlines the basics of the FTC regulation:


New Contracts: Post-term non-competes entered into, on, or after the effective date are banned as violating the FTC Act. This applies to all contracts. 


Existing Contracts: For existing contracts with post-term non-competes (entered into before the effective date):

  • Senior executives – existing non-compete provisions can remain in force.

  • All other workers – covenants are not enforceable.


According to the FTC, it is an unfair method of competition for a person to enter into or attempt to enter into a non-compete clause, to enforce or attempt to enforce a non-compete clause, or to represent that the worker is subject to a non-compete clause.


The final FTC rule defines a “non-compete clause” as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (2) operating a business in the United States." All businesses are required to notify their employees that the non-competes in their contracts are unenforceable.


The final FTC rule does not apply to non-competes entered into by a person pursuant to a bona fide sale of a business entity. In addition, the final rule does not apply where a cause of action related to a non-compete accrued prior to the effective date.


The Commission has determined that the definition of “senior executive” should include both a compensation threshold and job duties test. Accordingly, a senior executive is a worker who was in a policy-making position and who received a total annual compensation of at least $151,164 in the preceding year.


Remember, the “senior executive” exception applies only to the enforceability of existing contracts. All new non-compete contracts are prohibited after the rule becomes effective, even for senior executives.


There is the question of how this affects New York State law. The final rule does not limit or affect the enforcement of state laws that restrict non-competes where the state laws do not conflict with the final rule, but it preempts state laws that conflict with the final rule. Bottom line, the FTC action preempts state laws. However, state law would apply if it was stricter than the FTC's new law.


Unlike New York law, which allows post-term non-competes for all managers, the FTC rules are more restrictive. Thus, under the FTC rules, a covenant not to compete contained in an existing contract for a manager earning $125 thousand a year would no longer be enforceable under the FTC rules, even though it complied with New York Law. This is because the manager failed to meet the definition of a “senior executive” under the new FTC regulations.


The FTC’s new rules constitute a radical change in labor law. We urge you to contact your attorney to see how these new rules affect your station. A number of business interests, including the Chamber of Commerce, plan to litigate the FCC’s authority to craft such rules. We will keep a close watch on this litigation.


You can see the FTC’s new rules (all 570 pages) here.


You can see the current New York covenant not to compete law §202k here.


You can see a summary discussion by the law firm Crowell here.


You can see an additional discussion by noted communications attorney Scott Flick here

 

 

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