By Warren Hoemann, PrePass consultant, former FMCSA chief counsel and deputy administrator
The Federal Trade Commission has proposed a broad ban on the use of non-compete clauses between employers and workers, as well as a requirement to rescind existing non-compete clauses. This FTC Notice of Proposed Rulemaking (NPRM) would apply to businesses in all industries, including trucking. Here is what those in the trucking industry need to know:
What does the FTC consider as a non-compete clause?
The FTC regards a non-compete clause as a contractual term between an employer and a worker that prevents the worker from seeking or accepting certain employment after their current employment ends. Typically, FTC notes, a non-compete clause is intended to prevent a worker from joining or starting a competing business, and its application is typically limited by time and/or geographic area. However, FTC proposes to ban all non-compete clauses, regardless of any such restrictions.
My trucking business uses owner-operators. So, I’m okay?
Not necessarily. FTC would define “worker” to include “an employee, individual classified as an independent contractor, extern, intern, volunteer, apprentice, or sole proprietor who provides a service to a client or customer.” The key is what your owner-operator agreements say.
My owner-operator agreements, and the manual for my employee drivers say they cannot disclose our rates, routes, customers, or cargo. Now FTC would prevent me from enforcing that?
Several points here:
- First, non-compete clauses as defined by the FTC attempt to control worker behavior after employment has ended. You can impose legal restrictions during employment – such as while the O/O or your own driver is working for you.
- Second, the FTC understands the need for non-disclosure agreements (NDAs). The FTC proposal would not ban NDAs unless they are so overbroad that a worker cannot reasonably seek new employment.
- Third, regarding your driver’s manual. FTC says that an employee manual can potentially contain a non-compete clause if it has or infers a restriction on future employment. There need not be a separate contract.
Just to be clear, can I prohibit the back-solicitation of my customers by an O/O or independent contractor?
Yes – while they are working for you. But under the FTC proposal, a restriction after their work is done could be forbidden.
My company provides CDL training to new drivers. We deduct that cost from their paychecks if they are employed. But if they leave, we are owed that money. Would the FTC regard that as a non-compete clause?
The FTC proposal says that “training reimbursement agreements” are okay if reasonably related to the actual cost of training.
My business partner wants to divide our fleet and run their own operation. Would FTC prohibit the non-compete clause we might agree to?
No. FTC recognizes that non-compete clauses are common during the sale or division of a company. FTC would apply a limited exception where the party restricted by the non-compete clause is an owner, member, or partner holding at least a 25% ownership interest in the business. FTC is asking for comments on whether that limited exception should also apply to all senior executives. On the other hand, FTC advises that federal antitrust laws still apply.
Don’t some states already prohibit non-compete clauses?
Yes. Three states – California, North Dakota and Oklahoma – forbid non-compete clauses under state law. In the other 47 states, non-compete clauses that are overbroad or too restrictive may run afoul of state unfair competition or restraint of trade laws. No matter what happens with the FTC proposal, fleets are advised to consult with their human resources officer and an attorney.
Comments on the FTC proposal are due by March 20, 2023.
The PrePass blog and podcasts are published as a public service of PrePass®, the most reliable and technologically advanced weigh station bypass and integrated electronic trucking toll payment platform in North America. PrePass also includes INFORM™ Safety and INFORM™ Tolling software for improving truck safety scores and lowering toll costs.