Nearly two years ago, President Biden issued an executive order calling on the Federal Trade Commission to ban or limit non-compete agreements, stating that workers should be free to take a better job if someone offers it and that an employer should have to make it worth-while for the employee to stay.
The White House move was based on a Treasury Department study that concluded non-competes reduce wages by an average of 1.4% and that job switching is generally associated with substantial wage increases. SAG and AFTRA welcomed the move, issuing statements that non-competes are “a major problem” for its broadcaster members.
The FTC Proposed Rule
In January, the FTC acted and proposed a new rule, which prohibits employers from entering into non-competes and many types of non-disclosure agreements and also requires the rescission of existing non-compete and non-disclosure agreements. It claimed that its proposed rule would increase American workers’ earnings between $250 and $296 billion per year and promote greater dynamism, innovation, and healthy competition. The FTC also claimed that the proposed rule would ensure that employers could not exploit their outsized bargaining power to limit workers’ opportunities and stifle competition.1 The comment period ended April 19, 2023.
Consequences for Broadcasters
Trade publications noted that broadcasters would be particularly sensitive to such a ban as the industry uses non-competes, especially with on-air talent “personalities,” which station management invests heavily in and typically has a strong role in developing, and salespeople, to protect the advertiser and customer lists of the station.2 And, unlike some state-level non-compete bans, the federal prohibition would include almost no exemptions. The draft rule would only allow non-competes when selling a business.
Even in today’s environment of voice tracking and audience research, skilled employees continue to be valued not only for what they bring to the station, but for the damage they can do if hired away by the completion. A key Sales employee can be worth her weight in gold, literally. And, while many stations are seeking to control costs by moving away from live talent, the key to many stations’ success is the successful promotion of its on-air talent and the on-air characters they create. Indeed, a popular local personality, particularly in smaller and medium sized markets, may be the ticket to ratings success and represents a substantial capital investment by the station in local promotion.
Once established, the station often wants to protect its “personality” investment against another station that might try to “steal” the talent (and the capital investment that went into her promotion), or against the talent’s attempt to capitalize on his popularity with an offer from another local station. Key Sales staff develop close relationships with advertisers.
Station management frequently tries to keep that salesperson and advertiser relationships tied to the station with covenants not-to-compete and confidentiality clauses that claim the sales list as intellectual property or a trade secret of the employer.
New Strategies for Protection
But all is not lost when it comes to protecting your station. As the FTC’s own fact sheet states, “employers have other ways to protect trade secrets and other valuable investments.” Good broadcasters know that it is wise to invest in and promote good talent who will relate to the community, promote the public service value of the station, and cause the community to relate to the station and that can be expensive. So, it is not unreasonable that, if done successfully, the station will want to and should seek to protect its “personality” investment against another station that might try to “steal” the talent. That station might be able to offer a higher salary by allocating the money they did not have to invest in developing the personality in the first place. In a sense, and all other things being equal, stealing talent from across the street that benefited from heavy promotion and other perks paid for by first station is, in a very real sense, stealing. Station number two didn’t have to spend that capital. That’s why many broadcasters have traditionally sought to protect themselves with covenants not-to-compete. But if that’s gone, what’s left?
Post Employment Consulting
If management believes it has or will have a need for such protection, one method that has sometimes worked is to replace the non-compete with a compensated consulting period following termination of the active employment for a reasonable period, with or without actual consulting taking place. As a consultant, the employee would not be able to work for a competitor while on salary to its former station. It cannot be overemphasized that this is a very difficult area and should be undertaken only with the advice and guidance of a skilled professional knowledgeable in this area of employment law.
Intellectual Property Protection
Several examples drawn from court cases illustrate alternative methods of protection. One example occurred when a successful radio sales executive of a Cumulus Connecticut station moved across the street. While losing on the lawsuit to enjoin the salesperson from visiting its advertisers or soliciting any more of its employees to move to the new station, the court did require the employee to return certain materials alleged to be confidential and further enjoined her from soliciting other employees to jump ship. A Florida lawyer and author of a non-compete blog followed the case and took this from it: Cumulus basically lost the non-compete case, but the lesson here is “Leave it behind. Documents, customer lists, confidential files. Leave all of it behind. Do not attempt to take it with you for use at your new employer.”3 Broadcasters can ensure this happens by including provisions in their employment agreements to specify that all customer lists, sales lists and sales data comprise confidential employer trade secret property and cannot be used or accessed for any purpose other than to generate sales for the current station.
Similarly, as programs develop an “identity” and talent create “characters” it should be stated clearly in station policy and employment agreements that the show and character identities were created for the benefit of the station employer, are the intellectual property of the employer, and may not be used outside of the station without the explicit permission of the employer. To the extent possible, stations should register any trademarks or service marks associated with on air talent as the intellectual property of the station employer. Such registration ensures that even if talent leaves, the phrases, shows, and segments, as well as fictional identities the station has invested time and resources in promoting and associating with the station will remain with the station, not the talent.
For example, New York’s legislature banned non-compete clauses for on- and off-air broadcasting employees that extend beyond the term of employment in what it called the Broadcast Employees Freedom to Work Act. So, when the contract of a New York Cumulus morning team, Scott and Grosvent, marketed as “The Show” ran out, they took their “gig” across town. Cumulus sued for violation of the post-employment non-compete and violations of various intellectual property rights, including titling the show as “The Show” and using various fictional characters in their sketches.
While a New York judge ruled that the non-compete did not prevent the team from moving to a competitor station, the agreement did ban them from referring to their program as “The Show,” ruling that the title belonged to Cumulus, since it had been created there. The team was also banned from using the fictional characters and named program segments. Once more, the lesson is: they can go if they want to, but they must leave the station property behind.
Non-compete agreements have always been a risky bet; while the FTC is now getting involved and may prevent non-competes on a national level, many states have limited or banned non-compete clauses for years now. With or without them, the better bet is to examine what information and promotional identities can be protected and to broadly and promptly protect the station’s property rights in its intellectual property.