Would the FTC's Noncompete Ban Prohibit Signing and Relocation Bonus Clawbacks?
at Parker Poe Adams & Bernstein LLP
The Federal Trade Commission (FTC) recently reported that it had received over 25,000 comments on its proposal to ban employment noncompetition agreements. Most of the discussion over the proposal involves traditional agreements that prevent an employee from working for a competitor for a period of time following departure from employment. However, the FTC’s proposal also bans other types of restrictions that could functionally prevent an employee from changing jobs. The FTC gives the example of a training reimbursement agreement whereby a worker agrees that they will repay the company for costs incurred in training if the employee leaves before a certain time has expired.
The proposal does not specifically mention other types of employee reimbursement agreements. For example, many companies provide new employees signing bonuses or relocation expense reimbursements. These agreements commonly require the employee to reimburse all or a portion of the amounts paid if they resign within a defined period.
Would the FTC’s noncompete ban apply to these types of agreements? On their face, they may deter an employee from leaving for another job. However, unlike training expenses, these bonuses or expense reimbursements actually result in money that is directly paid to the employee. Would employers be willing to pay these amounts if the employee could take the money and quit the next day without consequence?
Employers may shift to paying such bonuses or moving expenses in increments over time if they are prohibited from seeking reimbursement. The employee could resign without consequence other than not receiving the full amount of the benefit. In any case, the FTC approval is a long way from becoming a reality. Any final rule will undoubtedly result in lawsuits, and those suits would likely delay the ban’s implementation until litigation is resolved.
