Say What? Would the FTC Noncompete Ban Apply to Independent Contractors?

Her poor family and dog.

When writing, precision is important. So is grammar. A missing comma can change the entire meaning of a sentence, as Ms. Ray’s possibly sautéed relatives can attest, once they have been sufficiently glazed and garnished.

When used properly, commas can separate multiple items in a series. And in the FTC’s proposed new noncompete rule, when it comes to defining “worker,” there are multiple items in a series.

So let’s get right to it: Would the FTC’s proposed rule prohibit non-competes with independent contractors?

Yes, if the independent contractor is a “natural person.”

The rule covers restrictions on individuals, not entities. The rule covers contracts with individuals, not entities. The rule would not affect non-competes with a single member LLC, if you contracted with the entity. You could still prevent the entity from competing since the entity is not a natural person. (At least, under the proposed version.)

But remember, a non-compete with an LLC probably would not prevent the individual from competing as an individual or under the banner of a different single member LLC. If the contract attempted to restrict the individual too, the proposed rule would likely apply to that restriction.

Here’s how the proposed rule defines worker — with lots of commas:

(f) Worker means a natural person who works, whether paid or unpaid, for an employer. The term includes, without limitation, an employee, individual classified as an independent contractor, extern, intern, volunteer, apprentice, or sole proprietor who provides a service to a client or customer.

There are a few other things you need to know.

What would be prohibited? The rule would prohibit employers from:

  • entering into or attempting to enter into a noncompete with a worker;
  • maintaining a noncompete with a worker; or
  • representing to a worker, under certain circumstances, that the worker is subject to a noncompete.

The rule would also require an employer to rescind existing noncompetes and provide individual notice to each worker with a noncompete that it’s no longer active.

Will the rule go into effect? I doubt it.

The FTC will almost certainly pass the rule, or a similar version of the rule, after the public comment period expires. But the rule will then get blocked by the courts as an overreach of the FTC’s authority. Under several legal doctrines, including the major questions doctrine recently adopted by the Supreme Court, a nationwide ban on non-competes is almost certainly action that only could only be taken through Congressional legislation, not by an agency.

What should companies do regarding noncompetes with their independent contractors?

First of all, in most cases you shouldn’t have noncompetes with independent contractors. If the contractor is working on something proprietary and confidential, then maybe. But ordinarily, you should think of your contractor as an independent business that is free to compete in the marketplace. A non-compete clause in an independent contractor agreement could be used to argue that the contractor is misclassified, since non-competes are more characteristic of an employment relationship.

Second, this proposed rule provides another reason that it’s generally best practice is to contract with an entity, not an individual.

Third, I probably wouldn’t do anything right now. Let’s see how this develops. While I expect states to continue to pass legislation that bans or restricts the use of noncompetes, I do not believe the FTC has the same authority. I do not expect this rule ever to take effect. For more Q&As about the proposed rule, click here.

But Todd, what about the songs?

Some of you have reached out to tell me you like the 70s and 80s song references. For today, I would recommend Comma Chameleon by Culture Club, Comma Get Your Love by Redbone, and Comma Eileen by Dexy’s Midnight Runners. You’re welcome.

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© 2023 Todd Lebowitz, posted on, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.


Dead or Alive? Contractor Dispute Leads to Important Ohio Decision on Agency Deference

An author of romance novels died in 2020, committing suicide after online bullying. Or so it seemed. But a few days ago, Susan Meachen posted on Facebook to say she was back. Not in a risen-from-the-grave sort of way. She says she faked her own death and is very much alive. The story has been covered by CNN and BBC, and I don’t know whether anyone has yet figured out whether Meachen died or someone is now posting under her name.

One thing that seems more clearly dead, though, is the legal principle of agency deference in Ohio. This important decision arose out of a contractor dispute.

In a 7-0 decision, the Ohio Supreme Court ruled that under Ohio law, the judiciary is never [italics in original] required to defer to an administrative agency’s interpretation of the law, even if the statute is ambiguous. Only the judiciary has the authority to interpret the law for purposes of a judicial proceeding.

The Court held that an agency’s interpretation of the law is merely one view that a court may consider. The Court also stressed that an agency’s interpretation of common words is entirely irrelevant since courts are well equipped to interpret common words. Deference to an agency’s interpretation will depend on how persuasive a court finds the agency’s interpretation to be. A court might be more likely to defer if there is an ambiguity over a technical matter over which the agency has expertise, but even then, deference is never required.

I have attached an annotated copy of the opinion.

Here are some excerpts. These are quotes:

  • The judicial branch is never required to defer to an agency’s interpretation of the law. As we explain, an agency interpretation is simply one consideration a court may sometimes take into account in rendering the court’s own independent judgment as to what the law is.
  • First, it is never mandatory for a court to defer to the judgment of an administrative agency. Under our system of separation of powers, it is not appropriate for a court to turn over its interpretative authority to an administrative agency..
  • Now assume that a court does find ambiguity and determines to consider an administrative interpretation along with other tools of interpretation. The weight, if any, the court assigns to the administrative interpretation should depend on the persuasive power of the agency’s interpretation and not on the mere fact that it is being offered by an administrative agency. A court may find agency input informative; or the court may find the agency position unconvincing. What a court may not do is outsource the interpretive project to a coordinate branch of government.

The case arose when an engineering firm applied for an engineering license in Ohio. Seems uneventful, except the firm listed an independent contractor as its full-time manager. Ohio law requires a firm to identify a responsible full-time manager to receive a license. The Ohio Board of Registration for Professional Engineers and Surveyors denied the license on the grounds that a full-time manager could not be an independent contractor. The Board said that a manager had to be a W2 employee.

But the statute requires only that there be a full-time manager. It doesn’t say who can be a manager. The Board determined that an independent contractor could not be a “full-time manager” because independent contractors (if properly classified) are not controlled by their client. In other words, how could the firm be managed by someone it cannot control?

That’s a great question from a practical standpoint. If the contractor is properly classified, it might be a terrible idea to designate an independent contractor as your firm’s full-time manager. But that doesn’t mean it’s prohibited by the licensing statute.

The Ohio Supreme Court explained that the statute requires the Board (“shall”) to grant a license when a firm identifies a full-time manager and meets the other criteria. The Court ruled that the Board, as an administrative agency, has no right to impose additional requirements that are not in the statute, such as that the full-time manager cannot be an independent contractor.

The Court used this dispute to lay down a marker on an important issue of law — When must a court defer to an agency’s interpretation of the law? In Ohio, the answer is never.

This issue comes up often at the federal level too, and you’ll hear a lot more about this issue following the recent announcement by the Federal Trade Commission (FTC) that it plans to pass a regulation making non-compete agreements illegal. The FTC probably does not have the legal authority to do that. A law to prohibit non-competes would almost definitely have to come from the legislature, not an executive agency. If the FTC goes through with its plan, the issue is likely to end up in front of a federal court, which is likely to rule that the FTC does not have this authority. The US Supreme Court’s conservative majority has sent signals that it will be less inclined to defer to agencies than in the past, and it would not be surprising to see the US Supreme Court issue a ruling at some point that looks a lot like this Ohio decision.

The bottom line here is that the era of agencies making new law through regulation may be coming to an end. Agencies can interpret ambiguities in statutes, and they can provide more detail about legal requirements when authorized to do so. But they cannot impose new requirements when not specifically authorized to do so. The path taken by the Ohio Supreme Court may be a sign of similar things to come at the federal level.

In terms of typical independent contractor issues, this post is a bit off topic. But the issue is an important one, and it arose out of a contractor dispute, so I just decided to just go for it and write this post, whether it’s what you were expecting or not.

Kind of like Susan Meachen did recently when she posted on Facebook. Or didn’t post. We still don’t really know.

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© 2023 Todd Lebowitz, posted on, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.


Summer of Fun? FTC Announces Plans to Crack Down on Gig Economy

Zippy at her first reggae concert

In my house, we have declared this to be the Summer of Fun, and we’ve committed to going to events around Cleveland that we haven’t tried before. Sometimes the dog gets to come too. Last month, we took Zippy to her first reggae concert. You can tell she enjoyed it because she’s smiling. (Or she’s thirsty. Still not sure.)

No concert t-shirt for Zippy though. They had suitably small sizes but nothing with four arm holes.

The Federal Trade Commission is also trying new things this summer. In a July press release, the FTC announced that one of its new initiatives is a crackdown on gig economy abuses.

The FTC can’t bring independent contractor misclassification cases, but it can bring enforcement actions when it believes there have been unfair or deceptive business practices that disadvantage gig workers.

The FTC announced that “the agency will continue to take action to stop deceptive and unfair acts and practices aimed at workers; particularly those in the ‘gig economy’ who often don’t enjoy the full protections of traditional employment relationships.” The press release then listed several examples of enforcement actions the FTC has been pursuing against gig economy companies. The cases tend to involve deceptive claims about earning opportunities, including for gig workers who use their platforms.

The FTC further announced that it’s teaming up with the NLRB to share information about alleged wrongdoers in the gig space. We already know that the NLRB’s General Counsel is on a mission to crack down on independent contractor business models. The decisions by the NLRB and FTC to join forces only heightens the risks for companies using an independent contractor business model.

Business using an independent contractor model need to remember that misclassification claims are not the only legal risk. Be sure that representations made to independent contractors about potential earning opportunities and other business practices are accurate and realistic.

Otherwise, despite it being the Summer of Fun, with reggae concerts and other goodness, the FTC may soon be on your doorstep, ready to Stir It Up.

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© 2022 Todd Lebowitz, posted on, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.