HIGH POINT – The Federal Trade Commission ruled to ban all new non-compete agreements late last month, as well as forbidding employers from enforcing most current non-competes.
The one exception to the ban is with senior executives, who the FTC defines as making more than $151,164 per year and who are in a “policy-making position.” The rule allows existing non-competes to remain in place for this group but still forbids the creation of new non-competes.
There is speculation if the rule will survive legally, as several lawsuits have already been filed.
But nonetheless, we wanted to hear from the furniture industry. Is the ban a good thing? And will it be impactful?
Pat Watson, vice president of product development at Martin Svensson, thinks the effect will be minimal as there were already loopholes for people to get out of them.
“If another company wants to hire you, but you’re in a non-compete, they can find some way around it,” he said. “They can give you a different title, for example, like vice president of upholstery even though you might be working in case goods, to avoid claims of competition.”
Watson believes they make sense for employers that want to guard their secrets. Other times it’s more about the relationships a sales rep has cultivated.
“We’re all cooking with the same ingredients,” he said. “There aren’t really secrets with designs. But where they might make sense is for a company to try to ‘own’ a relationship a salesperson has with a customer, so sometimes non-competes are signed to not allow people to talk to that same customer for a specific period if they get a new job.
“But while that makes sense for a company, it really can have a major impact on the salesperson. And this doesn’t even just apply to sales. So, it’s tough.”
Jeff Schwall, vice president of sales at Porter Designs, gave his take:
“When all the companies were being acquired, I came off the road as independent rep and became an employee with a company. I did not sign a non-compete. But then, that company was bought, and they came to a lot of us and asked to invest. Knowing how good we were doing, several said yes, including myself. When I decided to leave, I realized us investors had signed a non-compete clause. I didn’t realize it when I signed. I got around it because I became self-employed. But that clause would have prohibited me from working for any competitors.
“My opinion is the furniture industry doesn’t have many secrets,” he continued. “Maybe if you work on furniture design or with something proprietary, yes, but overall I don’t see them being applicable to us anymore with how much our industry has changed.”
Doug Townsend, chief operating officer at Parker House, expects the effect to be minimal at first.
“The bigger companies that are either public or private-equity-owned all use non-competes,” said Townsend. “Private or smaller companies use them, but much less frequently. The ban won’t be too impactful if the people that already have them still can’t get out of them. I’ve seen them in place for 25 years now, so that’s a lot of people that will still have them.
“But I think over time it’ll have an effect. In the long term, people will have more flexibility. But then again, even now, non-competes aren’t always enforced because employers end up feeling bad.”
Townsend differed from Schwall on the value they hold for employers.
“It’s about guarding your ‘secret sauce’ or how you run your business,” he said. “Why are you lower priced by 10% than the guy across the state? It’s not intellectual property, but how you run your business is, of course, valuable.”
Finally, Micah Swick, president of Bernards Furniture, welcomed the ban.
“Non-compete agreements should be eliminated, period,” he said. “As an executive, I have never implemented new non-competes or enforced existing ones. Their only purpose to is to hold captive and cap incomes. If an individual cannot leave his/her position and go to a competitor, their ability to negotiate their income with their existing employer is significantly impeded.
“The impact on the furniture industry, same as all others, significant. More so if it eliminated altogether. Employers will have to be better employers to retain talent: better pay, benefits, working environments, etc. Dated leaderships styles and practices will be exposed and flounder. Contributors will be rewarded either at their current establishment or a new one, which will result in even greater performance and increased creativity.”
Let me know what you think by emailing me at rdalheim@furnituretoday.com.