Stay Tuned . . . FTC Ban on Noncompetes Could Alter Media Landscape

The Federal Trade Commission's (FTC) noncompete ban is set to take effect Sept. 4, though it faces several legal challenges. Media employers should prepare for changes that could impact both off-air and on-air talent. A nationwide ban could lead to shifts in job mobility, salary structures and station investments.

Local TV stations and other media employers have long used noncompete agreements, but these types of restrictive covenants were often limited to on-air talent, such as anchors and reporters. The goal then, as now, was to prevent popular media personalities, in which the station had invested time and money promoting, from jumping ship to the station across the street, and bringing with them loyal fans and viewers.

As the use of noncompetes became more ubiquitous in all facets of U.S. business, so too for the media industry. Media outlets began requiring off-air talent, such as producers, assignment editors, production assistants and cameramen to also enter into noncompete agreements as a requirement for employment. Noncompete law varies from state to state, but generally, such agreements traditionally will be enforced if the time and geographic restrictions are reasonable.

A typical agreement might limit a television anchor from working for a competing TV station within a 250-mile radius of the current employer for a period of one to two years. If someone wanted to change jobs, it usually meant having to pull up stakes and move to another media market. Violation of a noncompete can result in the employee (and their new employer) facing expensive and drawn-out litigation.

This could all change on Sept. 4, when the FTC ban on most noncompetes is slated to go into effect, barring ongoing legal challenges. On April 23, the FTC voted to approve a final rule banning all noncompetes (except for policymaking senior executives making more than $151,164) after the effective date. It also requires employers to provide notice that existing noncompetes are no longer enforceable and to cease entering into new noncompetes.

The FTC noted its decision aimed to promote business competition and protect employees’ freedom to change jobs or start a new business. Noncompetes are widely used in the United States to protect against unfair competition and protect trade secrets, and business groups have filed lawsuits to block enforcement of the new rule.

The media industry impact of the FTC ban, if the courts ultimately uphold it, could be mixed, although lower-level off-air production talent would likely benefit the most. Even prior to the FTC’s decision, there was less justification to require these types of media employees to sign a restrictive covenant. Viewers never see these behind-the-scenes employees, so if they left their station to work in another local newsroom, it typically would have little impact on viewership.

Anchors and reporters would also enjoy the same new job mobility, but there potentially could be a downside for on-air talent. Salaries and benefits for these types of employees are premised to some degree on the exclusivity a station gains by using noncompetes, knowing they can invest in the on-air personality without the risk of their investment going to benefit a competing station. Stations may not be willing to pay for higher on-air salaries, clothing allowances, professional coaching, promotions, etc., knowing that the anchor or reporter could quit on Friday and be behind the camera at a competing station on Monday.

Whether the FTC’s ban ultimately will go into effect is an open question. On July 3, a U.S. District Court in Texas issued a preliminary injunction, preventing the ban from taking effect while the court considers if the FTC had authority to impose the nationwide ban.

The court’s focus on the FTC’s limited rulemaking authority and overall process enacting the ban is indicative of the court’s leanings and suggests how the court may ultimately rule on the merits. The preliminary injunction follows the U.S. Supreme Court’s recent decisions limiting administrative agency power, including the recent Loper Bright decision overturning the Chevron doctrine, which traditionally required federal courts to show deference to an administrative agency’s reasonable interpretation of a statute.

This injunction only applies to the state of Texas and to the companies involved in the litigation, but employers should stay up to date as other challenges to the ban make their way through the courts. Phelps will monitor developments and provide updates.

Contact Mark Fijman or any member of Phelps’ Labor and Employment or Media, Sports and Entertainment teams if you have questions or need advice and guidance.