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Trust This. FTC No Non-Compete Rules

January 13, 2023

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Trust This.

By Joseph E. Seagle, Esq. ● Jan 13, 2023

Smart Brevity^® count: 3.5 mins...955 words

👋 Happy Friday the 13th 👻 For the pessimists: have fun staying in bed all day. For the optimists: happy 3-day weekend eve.

To bring some luck to readers, I’ve included a lucky 7️⃣ links to stories you may have missed this week instead of the usual 5️⃣.

Situation Awareness: Consumer prices rose 6.5% in the 12 months through December 2022. This is the slowest inflation in over a year. The Fed will probably use this good news to slow its roll on future rate hikes, keeping the next hike to no more than 25 bps.

1 big thing: No more non-competes?

Illustration of the words "Hiring" making a pedestrian crosswalk.

On January 5, the Federal Trade Commission proposed a rule banning non-compete agreements between employers and employees or independent contractors, whether paid or unpaid.

Why it matters: Many employers use these agreements to incentivize employees to stay with the employer even if the pay and work conditions could be better elsewhere.

Employers invest much time (money) in training and developing employees. They don’t want that used against them by an employee opening a competing business or going to work for a competitor.

The big picture: Florida regulates non-competition agreements, specifying what a legal overreach regarding duration and geographic coverage is.

An agreement may be unenforceable if — for example — it forbids a plumber to compete with her employer for 10 years anywhere in the state. But a prohibition of three months and 15 miles may be enforceable.
If the FTC has its way, even the latter would be illegal and unenforceable.

If it passes, the new rule would say that entering into or attempting to enter into a non-compete agreement with a worker would be an “unfair method of competition” under Section 5 of the Federal Trade Commission Act. No prohibitions on confidentiality or non-solicitation of other employees.

By the numbers: FTC estimates that such a ban could

increase workers’ income by $300 billion a year because employers would have to pay workers more to keep them;
expand opportunities for 30 million people who are subject to such agreements;
save patients up to $148 billion in health costs each year;
reduce monopolies and duopolies; and
close the racial and gender wage gap by up to 9.1 percent.

Our thought bubble: If this rule passes, it will be challenged on the theory that the FTC is overstepping its authority. Based on how the courts have leaned when similar arguments were made against CFPB and EPA, it’s a non-starter.

Go deeper: FTC’s rule and public comment site.

2. Advice from the trenches

A debate lectern with the shadow of an exclamation point behind it

On Tuesday, I had the honor of speaking on a panel at CFRI along with Fern C. Burr, Todd Hutcheson, and Phil Georges. The dialog between the audience and panel members was enlightening.

We shared current information about the state of sales, rentals, and real estate investor sentiment — and concerns — during the hour-long discussion.

The trajectory of rental rates was a hot topic that generated some debate when an audience member asked the panel what we thought rental rates would do over the next year.

I pointed out that the housing supply is still less than the demand because housing is being removed from the market to become short-term rentals, and artificial intelligence algorithms are raising rents.
Todd reminded us all that — as we learned in 2007 — what goes up must come down. At a point, wages don’t keep up with rents, so rents have to come down. Otherwise, landlords will be sitting with vacant properties.
He and another audience member who is a property manager shared their current experiences with prospective tenants who can’t afford rent in some of the cheapest Central Florida markets. That trend will reach the more desirable areas.
They expect that rents will remain flat this year and could drop to some extent, but no one predicts a crash in rent rates is on the horizon this year.

When asked about the best time for a new investor to enter the market, Phil said that “now” is always the best time to get into real estate as an investment.

The bottom line: The panelists had some final tips for the audience:

Fern: Always have at least a $5,000.00 overage contingency when renovating.
Todd: Never stop searching for sellers.
Phil: Don’t let perfection be the enemy of good enough.
Me: Call your lawyer or CPA before changing the title on a property.

Our thought bubble: Sharing an evening with friends is always nice.

3. What passed by

Photo: Ante Hamersmit

Four signs a sale is going to fall through. Real Trends
Home-flipping rate dropped in the third quarter of 2022, but it’s still higher than in previous years. The Title Report
Home prices are falling fastest in these seven cities (none in Florida. But Texas….). MSN
Meta (Facebook, Instagram, WhatsApp, etc.) is rolling out new algorithms and rules on advertising related to housing to help tamp down discrimination. HousingWire
Phishing, SMIshing, and Vishing attacks are more sophisticated than ever. Educate yourself on how to avoid them. First lesson: think twice before clicking that link in an unsolicited e-mail or text. CNBC
Investors and brokers face bad news in the first few weeks of 2023. Yahoo!
The 8 worst and best housing markets for investors. On the Market Podcast