241. Understanding the FTC's Non-Compete Ban w/ Paige Griffith

And y'all, this has caused quite a ruffle with business owners, especially small business owners who are now asking so many questions like, why would I move a contractor from a contractor to an employee if I'm not If I'm not even protected against them starting their own business now, and how can I protect myself when it comes to my employees, not taking all of my confidential information and starting their own business tomorrow, right next door.

So you guys, today we're going to dig into I'm here to tell you all of the things that this new ban on non compete agreements means for you as a business owner and how you can protect yourself and your business as you're bringing on team members, either as an employee or as a contractor. In today's episode, my guest Paige Griffith is digging into all things legal when it comes to the new FTC non compete ban and what you can do to protect your business As you're growing your team. Hey there CEOs.

This is the Wedding Pro CEO podcast and I'm your host Brandee Gaar. I'm a wedding pro just like you who's built one of the largest planning firms in Orlando, Florida. But it wasn't that long ago when that success came with long days, sleepless nights, and little to no pay. Fast forward to today and I have the business that I've always dreamed of. A killer team, steady profits, and weekends with my family. Over the past three years, I've taught over a thousand wedding pros how to do the same.

My mission is to create a movement of wedding pros who are building a profitable business that they've always dreamed of. Paige, I am so excited to have you back on the show. You have been a multi time guest and obviously one of our partners that we love, love, love having our students be able to go to the legal page and get all their legal advice for their small business. So welcome back to the show.

That's, that's why we, we have the democracy that we have and the court system that we have and the legal landscape that we have. But the FTC ruling was really this first federal wide sweeping authority saying That non compete clauses and non compete contracts are no longer valid in employment agreements. People are asking, well, does that mean that they can be in contractor agreements? It didn't really say much about contractor agreements.

Non competes were never allowed in contractor agreements. So if you've ever had non compete clauses or had to sign a non compete contract, and you're a contractor with somebody, It was never valid to begin with. So the ruling really says you cannot have non competes anymore in general employment agreements between an employer and an employee. The only caveat to this is with senior executives, they have to like make a lot of money, like over 150, 000.

And then those non competes still have to be extremely strict. For all of us, small business owners, this is That probably doesn't apply, right? Um, and you have to be a for profit business. The FTC only has regulation over for profit businesses. So if you're a nonprofit, this obviously wouldn't apply to you. That is what's really going on. The FTC basically said like they are trying to serve legitimate business interests across the board. The United States.

And of course that while like protecting trade secrets is important, preventing unfair competition in the marketplace is more paramount to them and is more important to the entire like working economy as a whole. And there's so many negative and kind of discriminatory effects. With non competes. And obviously, uh, us as business owners, we're like, Oh, great. But for employees, it's a big win for them.

And it's kind of a big win for the economy as a whole to really be like, well, we can, we can work for someone. We can learn lots of things and then either go work for a competitor with those skill sets that we learned or start our own business. And that leaves a lot of us as small business owners, very concerned. So that's, What's going on right now?

So we have had a very small cooling off period that I felt like just allowed it, to, for that specific reason, like you, you can't just start your new business tomorrow from working for me. And so I'm, I'm super disappointed. I'm not going to lie. I feel like it makes it very challenging for small business owners, as you kind of said of like, wow. So somebody can literally come learn everything from me and then open their business right away. But it is what it is. No one can be you.

So for anybody that's listening, freaking out, um, nobody can be you. And I think that's why it's so important that you understand how to market yourself and what you do and what your brand is and your reputation and your relationships in the industry, because no one can take that from you. no matter what. that said, I know that there's some questions that have come up from my students and lots and lots of chatter within my group.

So one of the biggest questions that I'm hoping you can help us answer today, Paige, is what would be the benefit now, of somebody moving somebody from a contractor to an employee? Because one of the biggest things was like, you're more protected, you're more protected. can you talk us through that a little bit?

So, geographic wise, they have to be pretty limited. Uh, it can't, you can't say like someone can't go create, say a wedding planning business Three states away, right? Like that's never gonna hold up in court, . Um, it's just they can't be in like the same vicinity as you and take all of your like clients and same venues and all of those types of things. Right? Yeah. In terms of, and, and you said, you know, limited in time. Yeah. So it's scope and time, region and time.

It, it's important to us because we don't want someone to go, yeah. Learn something from us and then at the same time build their business. And then open something very, very similar. Maybe you have like a six month time period or a 12 month time period. Yeah, it has to be pretty short. Um, but still there's a non compete in there. I, I think a lot of times employers are hanging their hat on non competes too much because here's the deal. No matter where you live.

You one, need to check with an employment lawyer to see if non competes are even valid in your state to begin with. Lots of states don't really favor them, and so they're going to side with the employees no matter what. So even if you had a non compete in a state that doesn't really allow non competes. Like it's kind of a null and void clause in your contract to begin with. With you, you know, you got advice from an attorney that was saying, yes, you can have them, but like, let's limit it.

So that's important to know as we move forward. And Brandee, we can kind of discuss like what's going to happen with this FTC ruling, because that's also a consideration we all need to make as employees or as employers. In terms of like the benefits to having employees still, I think that they. are amazing compared to contractors. Yeah, there's so, and I would love to hear your thoughts on this too. I have employees, Brandee has employees.

I think we have both experienced kind of the transition from a contractor to an employee or having like a bad Apple employee and then feeling like we need to move back to contractors or having Longevity with employees and feeling that loyalty and commitment for me, that is why employees far exceed the benefits of contractors. I, I, I know that in the small business world, we all really, really like contractors, right? It's, it's easier to cut ties with, you can terminate at any time.

So it's like you can dabble, right? Like you can get your feet wet. You can work with this person, see if they work out. If they don't, there's like no harm, no foul, but you don't get to control their schedules as much. It's just like, here's the project, try to finish it. You, you don't get to talk with them as much. There's just that not all in aspect that there is with an employee. I want control over my My employees work schedules and tasks and being able to talk to them day in and day out.

And I want their loyalty and commitment to me. I, there's a lot of like culture and values in the company that come with having employees. Also, I personally, I'm in the boat of Again, like you said, they can't be you. Yes. What'd you say?

They're going to be more committed to you, and if they like the culture of your business, they're going to stay. And I, I have seen the output from employees far exceed contractors, and I think we both are nodding our heads here.

Like having, you know, a great copywriter that you can, you know, throw on contract or somebody that's literally just going to show up on wedding day to help you pick stuff up and put stuff down, you know, when you need additional help. Great. That's fine. But as you're trying to scale a business, Having those employees bought into your culture, bought into your brand, understanding how you're trying to move the company forward and what your vision is. There's so much to that.

So I'm glad that you touched on that page because those are like intangible, right? They're, they're so intangible. And one of the things that I hear all the time from business owners is they'll be like, but then I have to pay their payroll tax. And I'm like, you understand we're literally stepping over dollars to make pennies, right? Like this is crazy that we're even talking about payroll tax. Because of how much an employee can change the face of your business.

But I know that this whole non compete thing is making people think, well, I knew I couldn't have a non compete with a contractor. But I could with an employee. And so now what's the point? What's the difference? And I think you're really answering that with, there's so many intangibles that are, that are there with an employee, right?

, their mental capacity is all. Is all there. Yeah. Just for, my company versus trying every day to piece together five different clients and figure out like how I'm going to fulfill my, my projects with them probably at like 70 percent capacity max. And I, I want my employees at 80, 90 percent capacity. I don't expect them to be a hundred percent, right. All the time. That's just, we're all humans, but I also want longevity.

I think, you know, that, uh, working with employees, giving them benefits and perks. You know, increasing their pay, yes, but maybe like shifting them around in the business, giving them more authority in the business, giving them more, uh, like changing their title, their roles in the business to what makes most sense for them, moving up. People really like that. They feel really good about that.

And, uh, Training an employee versus training a contractor and someone who is at least working part time for you, but full time employees in particular, they are going to create things for your business so quickly, once you put in the time and effort to train them efficiently and effectively at the get go. And contractors are going to take months, like months and months and months and months.

Sometimes it takes, I think like six to 12 months for a really good contractor to start working for my company. And a lot of times we as small business owners, we don't have that kind of time. We have a couple of weeks, two to four weeks to train someone to get them to where we need them to be. And that is where an employee comes into play.

So then there becomes this frustration of like, well, I'm just going to stay me because it's not working with, with having employees. I'm like, that's not an employee. That's a contractor. It's so frustrating. So yeah, getting that buy in I think is a really, really big one. I wanted to ask, well, one of the things I wanted to kind of touch on too, you were saying non competes aren't even legal in some states, so I think that they're definitely non competes. That are out there that aren't legal.

They wouldn't hold up anyway, but even if they did, Can we talk about that for a second? Cause I think that you touched on this. You said a lot of small business owners are hanging their hats on the fact that they have this non compete, but like you would actually have to go try to enforce it even. Yeah. So can we touch on that for a second? Because I want people to, I think people are genuinely freaking out. Like, what am I going to do? Why would I bring in an employee?

I have no protection now. And I, I want to kind of explain like what you would have had to do even if you had a non compete before.

And I think business owners that have employees and have non compete clauses in their, or a non compete agreement that's attached to their employment agreement, they kind of just think like that's going to solve all their problems and they can wave a magic wand and be like you can't compete with me. Yeah. No, they probably can and will if they want to go that route. Again, it's like, it's more of like a scare tactic, I would say, employment wise, where you're saying like, please don't do this.

So the goal of those non compete clauses and non compete contracts is to hopefully deter people from competing with you for like a certain period of time. That's the ideal world, right? I think yours is maybe around six months. Okay. Let's just use that as a hypothetical here. You're just saying like, please don't do something for six months.

If they feel like I am someone who's going to follow a contract that I signed and I'm not going to risk the potential for my employer to like file a lawsuit against me and lots of employees are. They're very risky and they're like, I'm just gonna violate this non compete and see what happens because I don't know if my employer has the The balls or the guts to like, come and fight me on it. So they're going to do what they want to do.

That's, I always, always say that in employment law, like employees are going to do what they had anticipated doing from the get go of working for you. So. It's also like the culture that you create at your company, right? If they have loyalty and commitment to you. And I think the word commitment is what's important here. And you were saying this to Brandee, like if you're not fully committed with them, they're not going to be fully committed with you.

And you were saying that in kind of the wedding industry as a whole, like you expect them to commit to you and commit to these days. But you're not even making them an employee. It just, it doesn't make sense. Like those two don't go hand in hand. They're not going to go all in with you and your business. Or like I said, 80 to 90 percent in with you and your business. If they don't get the benefits of being an employee, there's a lot of other benefits, right? Unemployment, workers compensation.

They don't have to file their own taxes. It comes out on their W 2s. There's a lot of benefits there. They're not running their own companies and have all of that baggage to deal with. They're just working for you. It's, it's a nice gig for a lot of people. The majority of, like, the United States workers are W 2 employees for a reason.

And so, yeah, I mean, hopefully I kind of answered your question there in terms it, like, a roundabout way there's so many reasons why employees are still a really good idea for business owners.

She ended up doing a lot of things that moral code weren't right in general, but the, but I had nothing. To protect myself anyway, right? Fast forward. I now have employee agreements. I have independent contractor agreements and associate agreements. We have all of that in place, but I've had an employee leave who was not a great fit from the beginning. We mutually decided to part ways. She tried to start her company within her non compete period and Honestly, I, I was like, what, who cares?

Like I, at the end of the day, I was like, am I really going to fight this in court? Like, I don't want to, I don't want to deal with it. And I don't, to be honest, I don't think she's going to be able to do what we've done. Right. So I didn't, and she's no longer in the industry. So I think we put too much protection in these non competes. And I think honestly, for me, what I've found solace in with the non compete is more just that.

I hope to hire good people for most, you know, most of the people you hire, you hope to be good people. And it's almost like a gentleman's handshake. Like, am I going to enforce it? Probably not. Am I going to go to court about it? Probably not. I'm not saying I wouldn't ever, but I probably won't. But we both agreed to this. And so it kind of, to me, feels like a gentleman's handshake. And honestly, in 17 years, besides those two incidents, I've never had anybody else.

Most of the people that have left have been like, I know I have a non compete. Totally fine. And I'm like, whatever, you know, do what you want. But at the end of the day, I just think that there's, I think it's not that big a deal for us as small business owners, this non compete situation banning them because we, we would have had to enforce them anyway. And I don't know that many small business owners that are gonna spend that much time and money to enforce. A non compete anyway.

Like, at what capacity would this particular employee need to violate it in order for me to want to enforce it? Say, like, I have a marketing director. She does, like, all of the back end marketing for TLP. If she just went and worked as a marketer, like, left me and went and worked as a marketing director for another online business that wasn't an online virtual legal business. I'd probably be like, cool, right?

Like the competition, the capacity of the competition, just it's not super damaging or impacting on me. And that's important, right? What are your damages? That's what a court is going to look at. That's what a mediator or an arbiter is going to look at. So. Do you really have a lot of damages from them competing with you and your business? And that's kind of what the FTC is saying here.

Like the, the pros and cons and like the, the scale and the balance is more favorable for them competing and, you know, being able to create a more competitive environment in the economy. And like, people should be able to do what they want to do and like use the skill sets that they gained working from you. And I, I think it's employers that are just enforcing these. That's sweeping across the board.

That's creating these issues for workers where they're like, I can't even use the skillsets that I learned working for you to go work for like, a similar business, but not the same business. For me, it's like, if you were to basically take all of my trade secrets, all of my copyrighted materials and start the exact same business, That would be a problem. Or if I started seeing like Facebook ads and like marketing campaigns that were identical to mine that you are now taking.

And again, this is, and we can get into this, like other ways you can craft things in your employment agreements with like confidentiality clauses, ensuring your trade secrets are safe. That would make me want to enforce a non compete. So it'd be a breach of contract breaching a non compete, but I'd also probably stick in like breaching my confidentiality clause, non solicitation clauses. Again, like if you are poaching all of my clients, we have an issue here.

So hopefully that answered it in a little bit more of a legal respect in terms of what I would do, but my contracts and like how enforcing non competes would really work in real life. In real time, if it were to be violated.

We're going to have issues and we're going to have lawsuits. So that's what occurred. Uh, we have two lawsuits challenging the FTC's authority to issue this type of ban. They're actually in Texas. There's probably venue shopping happening there, which means, uh, They're going, they're, they're filing suit in a federal district court in a location that's probably more favorable to the plaintiffs where they're filing suit.

And it's funny, as we all know, it's kind of like Texas, Alabama, like what the heck is going on in these states? Of course it's Texas. Right. Um, so what does this mean? Right. Like both suits are arguing that the FTC has exceeded their Seated its authority. Basically, they're saying the agency didn't have the power to issue this federal ban Okay, that's important to know and even if it did they're saying like the categorical ban on non competes Isn't lawful.

So like it needs to be a little bit more piecemeal of a like sweeping regulation It's interesting in my opinion.

And this is where I can like go full Legal Paige on you because I worked in federal court I totally know how this goes and I think how like laws get Enforced and implemented and then go through the court system is fascinating to me and everything I honestly, with a lot of things that have happened in the Supreme Court in the past few years, I think a lot of, uh, just, you know, general lay people are, they're more in tune with what's going on in the court system too, and how laws are

being enforced or not enforced. So because this was already handled at the state level and there are tons of like cases and precedent in certain states regarding non-competes. states like have kind of their own skin in the game here, especially like in Texas and places where these lawsuits are popping up. We have to know that when. It's in court. It's like this gray area and it's not a fun gray area to be in as business owners because we're like, okay, so there's lawsuits being filed.

So is this ban actually valid? Yes, right now it is because there's no like, Injunction, uh, which means to stop, right? There's nothing saying that this ban has to stop right now. It might occur, but I don't think it will. And if it did, it's going to be pretty limited to the plaintiffs in these cases and maybe their employees. However, it has to go through the court system, which takes so much time. So it's going to start at federal court and then it'll go to the appellate court.

And I, I mean, I don't know if the Supreme Court would pick up this type of case. They only pick up like 80 cases a year. Um, so, but still to even get to the appellate level and to have an opinion, it's going to take a year or two. So we're in this limbo land. And just to paint a picture for everybody, that's where we're at right now. Okay. The ban is still intact, so we need to address it with our employment agreements. We, however, probably need to talk to employment lawyers in our state.

Okay. And see like, How the employment, employment law industry in our state is handling this type of issue. Employment lawyers are jumping on phone calls. They're jumping on webinars with other employment lawyers in their state, and they're trying to say, okay, here are the case law and precedent that we have in our state. Here's this FTC ban. How are we mixing those together? And how are we adequately informing our clients to move forward with their employment agreements?

I would tell you in the small business world, it's probably best to pull back on non competes right now, just a little bit and do other things with your contracts. But I want everyone to know that there is the possibility here in the next year or two, that this ban could literally be, uh, Struck down. And in that case, then we're back to the land of state by state. Non competes may or may not be valid in your state. Yes. So it's a gray area.

It always is, you know, like lawyers say, well, it depends. It really does in this situation, especially because now we have lawsuits being filed.

So. You had mentioned a couple of different clauses. I want to, I want to help our listeners to understand what are some other things that can be in your contract that can protect you that honestly are probably going to be easier to enforce anyway than a non compete would have been. Um, what are some of those clauses that we should have in our contracts? To protect us.

But if I'm looking at this law and I'm kind of looking generally at what non competes would look like in the wedding industry, employment contracts as a whole, I would say you need to do that. But in that email, you need to point out other clauses and hopefully you have these in your contracts. If you don't, maybe the best course of action is to say like, according to this new ruling that came out, I think we need to sign a new employment agreement.

And one, that's probably going to feel good for your employees. Like, okay, you're, you're seeing what's going on out there. You, you're a professional, you're taking action. And what I would do is I would point to either other clauses in the contract that If you already had them in there and we'll talk about them or I would have a new employment agreement that took out non competes. But I would highlight a couple of these clauses. Okay. So there's like two ways to go about it.

Cause I don't know what your contract says and how good it is, your employment agreement. So you need to strengthen them. Okay. Uh, you need to have a really robust confidentiality clause. This is all about trade secrets. So what are your trade secrets? Do you, do you keep them secret? That's really important. You can't like try to enforce Someone breaching a trade secret.

If it's like really not a secret in your business and you tell everyone in anyone, like all of your employees and all of your contractors. But if it's something that you only share with this one employee, like your numbers or your client lists or like pricing strategies or things along those lines, that would be a trade secret under your confidentiality clause. So have a good confidentiality clause. Uh, and.

Brandee, we briefly discussed this, but actually before we pressed record, but some people are confused between an NDA and a confidentiality clause. So a confidentiality clause is, just that. It's a clause relating to the confidential information that you would give to an employee or that they might come into, uh, you know, like they, they might come into being at your, uh, business. And What you can and cannot do with that confidential information. An NDA says the exact same thing.

It's just like a four cornered agreement. So it's like a one pager document versus like a one paragraph clause. They're very similar. I, I like full NDAs because it's, it's a better way for you to be like, Here is the confidential information that you may come, you know, about in my business. And I don't want you to do X, Y, Z with it. With a four cornered agreement, they can never say like, well, I didn't really see that in your employment agreement.

And it was like hidden in the middle and a confidentiality clause. So a lot of times I say like confidentiality, employee, shall abide by the accompanied non disclosure agreement that they'll sign in addition to this employment agreement. Um, but they're the same things. So just so people know, it's not like you need to have a confidentiality clause and an NDA. You need to have one or the other and have a really good, uh, you know, you might be able to put in a non solicitation clause.

Non solicitation clauses get very, very, um, sticky in terms of how they're written. So don't try to write a non solicitation clause by yourself because it can oftentimes look like a non compete and they have to be really, really limited. Like certain types of customers, um, like client lists, things along those lines.

Uh, you know, you, you can't really say like, you can't go, You can't do something that would like potentially have this client, like find you in their own respect and decide to like move over to you. It's just, you can't call it my clients. Right. And solicit them and say, come to my business. So just be, be very careful with a non solicitation clause, but that one and like a confidentiality clause.

or an NDA is kind of the best practice here for ensuring that at least your trade secrets are protected.

Like, good luck, you know, because it's not easy and we make it look easy as business owners a lot of times. And at the end of the day, they're not you. So, you know, again, kind of going back to the beginning of the episode is even more reason that you need to make sure that you've got great relationships, you've got a great reputation in your market, and that you really are building that brand that's uniquely yours.

So, all right, Paige, you guys are right in the middle of your mid year sale, right? So can you tell us all about this? Cause I look forward to this every single year. I tell all my students, like, this is the time to get in with the Legal Paige because they have the best contracts and clauses. So can you tell us about the mid year sale?

And we also have really specific contracts for specific industries. So if you're a wedding planner and you have associates, whether they're employees or contractors, we have contracts for that. If you're a photographer, we have kind of associate contracts in that respect as well. So, Second shooter contracts that have a lot of that information relating to that contractor relationship in there.

Um, so all are really, really good to look into as you are understanding kind of the legal landscape of being a business owner and making sure that you're being more legally legit as you move forward in your business, as you hire on help, as you're also wanting to protect the business that you've worked so hard to create more and more.

We're going to put all of the links in the show notes, and I'm going to personally link some of my favorite contracts that we use in my business. And then I tell all of my students to grab. So I'll link those specific contracts in the show notes so you guys can go grab them. And Paige, thank you so much. This is so helpful. I feel like I have a better grasp on it and I know that our listeners are going to as well. So thanks so much for being here.