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The Federal Trade Commission Building in Washington DC. The FTC has proposed a new rule barring many non-compete agreements.

The current landscape regarding the enforcement of non-compete agreements is about to get flipped on its head in the United States. Following President Biden’s July 2021 executive order encouraging the Federal Trade Commission to employ its statutory rulemaking authority “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility,” on January 5, 2023, the FTC—in a profound exercise of its regulatory power—issued a notice of proposed rulemaking that would have a sweeping effect on the enforcement of non-compete agreements.

The Proposed Rule 

The new rule will not only bar employers from entering into non-compete agreements with their workers. It will additionally require employers to rescind pre-existing non-compete clauses no later than 180 days after the final rule is published. Additionally, employers will be required to provide notice to their employees that, as of the compliance date, any non-compete clauses are no longer in effect and may not be enforced against the worker.

To properly comply with the rule, an employer’s communication to its workers would need to be “individualized” and “on paper or in a digital format such as, for example, an email or text message.” Notice would need to be delivered within 45 days of rescinding the non-compete clause. The notice requirement would apply to current and former workers, to the extent that “the worker’s contact information [is] readily available.” The proposed rule includes a very limited exception which is applicable only to “a person who is selling a business entity or otherwise disposing of all of the person’s ownership interest in the business entity, or by a person who is selling all or substantially all of a business entity’s operating assets, when the person restricted by the non-compete clause is a substantial owner of, or substantial member or substantial partner in, the business entity at the time the person enters into the non-compete clause.” 

Preemptive Effect on States’ Non-Compete Laws

Until now, the enforceability of non-competition clauses was a matter of state law, and states’ positions regarding the proper scope of noncompetition restrictions have varied. If implemented, however, this new rule will supersede all state laws, regulations, orders, or interpretations to the extent that they are inconsistent with the FTC’s rule. It’s worth noting that only California, North Dakota, and Oklahoma outright ban the enforcement of non-compete agreements—so the FTC’s rule would effectively create a nationwide policy that goes further than state law in the remaining 47 states.

The tremendous significance of this new rule cannot be overlooked. Most U.S. companies will be forced to completely change how they operate in retaining talent and safeguarding company secrets. Thus, it should come as no surprise that the rule, if adopted in its current form, will face prompt legal challenges.

In publishing the Notice of Proposed Rulemaking—which is the first step in the FTC’s rulemaking process—FTC Commissioners voted 3-1, along partisan lines, with Commissioner Christine Wilson being the lone dissenter. In her dissenting statement, Commissioner Wilson notes that the proposed rule “…represents a radical departure from hundreds of years of legal precedent that employs a fact-specific inquiry into whether a non-compete clause is unreasonable in duration and scope, given the business justification for the restriction.” She further expects that the “…Commission’s competition rulemaking authority itself certainly will be challenged,” including under the “major questions doctrine” addressed in West Virginia v. EPA, as the “Commission lacks clear Congressional authorization to undertake this initiative.”

The public will have 60 days to submit comments on the proposed rule, which was based on a preliminary finding that non-compete clauses constitute an unfair method of competition and, therefore, a violation of Section 5 of the Federal Trade Commission Act. The FTC noted that it is specifically seeking comments on: 

  1. Whether franchisees should be covered by the rule; 
  2. Whether senior executives should be exempted from the rule or subject to a rebuttable presumption rather than a ban; and 
  3. Whether low- and high-wage workers should be treated differently under the rule.

The comment period closes after March 10, 2023. The rule would subsequently take effect 180 days after the final version is published, but its imposition could be delayed as it is almost certain to face a significant wave of litigation challenging the constitutionality of the rule.

Although the rulemaking process is still in the early stages, this is the strongest indication of legislative and executive intent to void existing non-compete agreements and ban the use of such agreements going forward. As the tides drastically change for American businesses, employers should be proactive before this comment period is over and speak to an attorney regarding how their policies on non-compete agreements will be affected going forward. RDM’s Employment and Labor Law Team is ready to help you understand your options and ensure compliance with potential new regulations. Contact RDM today.

Further Reading on the FTC’s Non-Compete Rule

Dillion Williams previously provided an overview of restrictive covenants, including non-compete and non-solicitation agreements, in “The Shifting Landscape of Non-Compete and Non-Solicitation Agreements.” The article appeared in the January 2023 issue of DRI’s The Brief Case and was co-authored by Kennard Davis, associate attorney at Baker Donelson’s New Orleans office. Dillon and Kennard serve together on DRI’s Diversity and Inclusion Committee.

The Missouri Capitol in Jefferson City. The state legislature passed statutes reforming punitive damage awards in 2020.

The Missouri legislature passed Mo. Rev. Stat. § 510.261 in 2020. The statute aimed to limit the frequency and sum of punitive awards. In advance of this aim, Mo. Rev. Stat. § 510.261.5 states that “[n]o initial pleading in a civil action shall contain a punitive damage award.” The section goes on to establish that the trial court must serve as a gatekeeper, granting plaintiffs leave of court to plead punitive damages only after a plaintiff shows “a reasonable basis for recovery of punitive damages” through “affidavits, exhibits, or discovery materials.”

The statute has now been in effect for a little over two years and has faced multiple challenges alleging the statute violates the Missouri State Constitution. Despite strong challenges from plaintiffs, the statute has been enforced in state courts throughout Missouri.

Defense counsel across the state have moved to strike punitive damage claims from initial pleadings filed after the statute’s activation date. Plaintiffs’ counsel have responded by asserting that the statute violates Article V of the Missouri Constitution, which states that “[t]he supreme court may establish rules relating to practice, procedure and pleading for all courts,” because the new statute conflicts with a procedural rule rightfully promulgated by the Missouri Supreme Court. This argument relies on the Missouri Court of Appeals ruling in State v. Emerson, which held that “if there is a conflict between [the Supreme] Court’s rules and a statute, the rule always prevails if it addresses practice, procedure or pleadings.” 573 S.W.3d 93, 102 (Mo. App. W.D. 2019). Plaintiffs have also claimed that the statute conflicts with the Missouri Rules of Civil Procedure and that the evidentiary standard and leave of court requirements violate the right to a jury trial found in Mo. Const. Art. 1 § 22(a).

Successes for Defendants…

Defendants have, to this point, been successful in enforcing the statute. At least three separate circuit courts have rejected plaintiffs’ arguments claiming the statute violates the Missouri Constitution and granted motions to strike punitive damage claims. There is not yet a written opinion explaining any court’s precise reasoning for upholding the statute, but defendants have advanced multiple persuasive arguments to rebut challenges.

First, defendants argue that the statute does not conflict with the Missouri Rules of Civil Procedure because the rules do not require punitive damages to be included in the initial pleading and the statute still allows punitive damages to be pleaded later. Defendants have also argued that the statute does not violate Mo. Const. Art. 5 because the statute only defines the right to punitive damages and therefore is substantive rather than procedural. Other defendants have argued that plaintiffs do not have a vested constitutional right in punitive damages, and the statute is merely procedural when guarding against claims that the statute interferes with Mo. Const. Art. 1 § 22(a)’s right to a jury.

…and Successes for Plaintiffs

While the statute continues to enjoy veiled but consistent enforcement in state court, plaintiffs have been successful in defeating defendants’ motions to strike in federal diversity actions. District Courts in both of Missouri’s federal districts have held that the statute is inapplicable in federal diversity cases because the Federal Rules of Civil Procedure “answer the same question.” See generally Davis v. ALS Express Trucking, Inc., 2022 U.S. Dist. LEXIS 140486. Plaintiffs’ counsel looking to avoid the new pleading requirements may start looking toward federal courts so long as parties are diverse. Plaintiffs have also been successful in limiting the statute’s application to only those cases filed after the statute’s trigger date of August 20, 2020. See generally Largent v. Pelikan, 628 S.W.3d 162 (Mo. App. E.D. 2021).

Looking Forward at Punitive Damages in Missouri

For the time being, it appears that Mo. Rev. Stat. 510.261.5 has survived initial constitutional tests. But plaintiffs’ counsel will certainly continue to bring forth challenges. The defense attorneys at Rasmussen Dickey Moore are prepared to employ all tools available to protect your business from punitive damages claims. Contact RDM today to discuss your case.

A biometric scan. Illinois' Biometric Information Privacy Act (BIPA) may allow for many claims against employers using biometric data.

Earlier this year, RDM member Nate Lindsey wrote about the ins and outs of the Illinois Biometric Information Privacy Act (BIPA). Enacted in 2008, BIPA allows individuals to make a claim against private entities that collect biometric data without first creating a publicly available policy on the data’s retention and destruction, obtaining the individual’s consent, and using reasonable care to protect the information gathered.

Since that article, Illinois courts have rendered multiple plaintiff-friendly decisions interpreting BIPA, increasing the risk for employers using their employees’ biometric data. Most recently, the first class action lawsuit brought under BIPA—Rogers v. BNSF Ry. Co.— was tried and ended in a jury verdict for the plaintiff class, which is expected to open the door for a flood of BIPA claims.

BIPA Creates Complications for Employers

BIPA is a plaintiff-friendly statute, evidenced by both its construction by the legislature and the courts’ interpretations of the Act. As one of just a few laws that afford a private right of action, any individual, whether an employee, customer, or visitor, can bring a claim against a private entity that collects or uses biometric data. Additionally, BIPA does not currently provide a statute of limitations, though the Illinois Supreme Court is set to address this issue in Tims v. Black Horse Carriers.

Most significantly, employees can bring civil claims against their employers who violate BIPA, as the Illinois Supreme Court held in McDonald v. Symphony Bronzeville Park, LLC, that such claims are not barred by the Worker’s Compensation exclusivity provisions. Further, the aggrieved individual is not required to show actual injury to recover statutory damages. In Rosenbach v. Six Flags Entertainment Corp., the Illinois Supreme Court held that any technical violation of BIPA is a “real and significant injury.”

Combined, these decisions made it easier for employees to bring civil claims against their employers, while simultaneously removing an important defense for employers, setting the stage for Rogers v. BNSF Ry. Co.

Rogers v. BNSF Ry. Co

In Rogers v. BNSF Ry. Co., Richard Rogers brought a BIPA claim against his former employer, BNSF Railway, alleging that the company failed to obtain his and other employees’ consent prior to collecting and storing their fingerprints. However, BNSF itself did not collect or store its employees’ biometric data; rather, it contracted this task out to a third party, Remprex, LLC.

BNSF argued that BIPA legislation did not authorize vicarious liability and filed a motion in limine contending that any argument that it could be held responsible for Remprex’s alleged failure to adhere to BIPA should be excluded. The Northern District of Illinois disagreed, finding that BIPA does not preclude vicarious liability under the common law doctrine of respondeat superior. The case advanced to trial and, after just an hour of jury deliberations, ended with a $228 million dollar verdict in favor of the plaintiff class.

The jury found that BNSF violated BIPA 45,600 times—one time per class member. However, a question remains: is each and every fingerprint scan a violation, or just the initial scan?

For businesses like BNSF that require employees to scan their fingerprints to enter facilities or clock in and out, this may mean multiple violations per employee per day, turning a million-dollar claim into a billion-dollar claim. The issue of when a claim accrues is set to be addressed by the Illinois Supreme court in Cothron v. White Castle System, Inc.

Implications for Illinois Businesses

As Rogers was the first case involving BIPA claims to go to trial and end in a plaintiff verdict, employers should expect to see an increase in BIPA claims brought by employees.

With this looming increase in lawsuits and potentially billions of dollars at stake, some insurers are attempting to avoid coverage by invoking certain exclusions in general liability policies, namely the Employment-Related Practices Exclusion, the Distribution of Material in Violation of Statutes Exclusion, and the Access or Disclosure of Confidential or Personal Information Exclusion. Decisions interpreting the applicability of these exclusions are inconsistent, and there has yet to be guidance from the Seventh Circuit Court of Appeals. Some insurers are also looking to add BIPA-specific exclusions to their policies.

In an uncertain and rapidly changing landscape, the best way to avoid liability and coverage issues is compliance. Entities that collect or use biometric data should ensure that their policies and procedures are up to date. The attorneys at Rasmussen Dickey Moore can help create and implement a policy on your company’s collection, use, and destruction of biometric data to keep your business compliant with evolving laws and out of the courtroom.

Greene County Courthouse in Springfield, MO, location of the 2022 Missouri Bar Annual Conference. Photo by Kbh3rd.

Last month, RDM associate attorney Jay Gillen attended the 2022 Missouri Bar Annual Meeting in Springfield, Missouri. The event was the first in-person Annual Meeting since the beginning of the COVID-19 pandemic. It was also Jay’s first opportunity to attend the meeting as an attorney since passing the bar exam in 2021.

Below, Jay provides his takes on the Annual Meeting from the perspective of a young attorney entering the legal field and stepping into the realm of post-pandemic, in-person networking.

Continue reading A Young Attorney’s Report from the Missouri Bar Annual Meeting
RDM attorney Nate Lindsey, winner of the 2022 Up and Coming Award.

Congratulations to RDM member attorney Nathan Lindsey! Nate has received Missouri Lawyers Media’s 2022 Up & Coming Award, an honor for outstanding attorneys who are under 40 or have been practicing for less than ten years. The award will be presented at a ceremony on October 14th.

Nate works primarily as an insurance defense attorney at Rasmussen Dickey Moore’s Downtown St. Louis office. His primary focus is on products liability law and asbestos defense litigation in Missouri and Illinois. He has extensive experience advocating for a broad range of national businesses, including manufacturers, premises owners, and contractors, during all phases of litigation with the ultimate goal of mitigating and eliminating legal risk.

Nate has also represented a variety of local professionals and entities, including retail owners, medical professionals, design professionals, financial planners, and construction contractors. He regularly appears for contested motions and trial settings in the circuit courts of Missouri and Illinois.

Nate began his career at RDM as a summer clerk in the Kansas City office while attending the University of Kansas School of Law, where he graduated in 2012. After becoming a full-fledged associate, Nate was tasked with establishing RDM’s new St. Louis office across the state. Nate quickly ascended the ranks to become a member of the firm in the following years and is currently the managing partner of the St. Louis office.

Prior to working at Rasmussen Dickey Moore, Nate gained experience as a law student extern at the United States Attorney’s Office for the District of Kansas and as an extern clerk for the Honorable Carlos Murguia of the United States District Court for the District of Kansas.

Leading Diversity and Mentorship Efforts

Along with member attorney Justin Ijei, Nate co-chairs RDM’s Diversity, Equity, and Inclusion Committee. The committee aims to lift the voices of young and diverse attorneys at the firm and to help those young attorneys take charge of their careers through mentorship and business development opportunities. Nate has presented at CLE seminars on the subject of diversity, equity, and inclusion at small and mid-sized law firms, as RDM has developed a reputation as a leader in promoting diversity at smaller firms.

Commitment to Community

Outside of his legal practice, Nate is the President of Dutchtown Main Streets, an economic development nonprofit in South St. Louis’ densest neighborhood that promotes a thriving community through shared prosperity. Dutchtown is among the most racially and socioeconomically diverse neighborhoods in St. Louis.

Nate has been at the forefront of efforts to return vibrancy to a neighborhood that faced decline and disinvestment. In 2017, he helped establish the Dutchtown Community Improvement District, the largest community-driven CID in Missouri. Working alongside a diverse crew of neighbors, non-profit partners, and government officials, he has overseen vast improvements to the neighborhood: newly-filled storefronts, rehabbed and occupied homes, major capital improvements to Marquette Park, the Louisiana Calm Streets Project, and a host of family-oriented community events.

Nate, his wife Staci, and their sons Thaddeus and Francis are active parishioners at the historic St. Anthony of Padua Catholic Church in Dutchtown.