As a transactional attorney, I focus my practice on helping clients plan for and react to business events much more so than I do on interpreting statutes or legislation. Sometimes, however, a statutory change or judicial ruling will have a wide-ranging—and retroactive—impact that is impossible to ignore.
Two such impacts have recently…impacted. Earlier this year, the Department of Labor changed its rules on how to determine if a person performing services for a business is a contractor or an employee. And earlier last month, the Federal Trade Commission banned non-compete agreements in all but a few circumstances, and voided most existing non-compete agreements.
The specific terms of each ruling are vitally important to certain businesses (and feel free to consult your friendly neighborhood attorney with any questions!), but are generally more important for what they can teach everyone about running a resilient business.
- Laws Change. Laws are interpreted and enforced by governmental agencies, and the way those agencies interpret laws changes over time in ways that are predictable in their patterns, if not their specifics. Significant changes to the law—such as the contractor status rule or prohibition on non-competes—have been telegraphed for years. Business owners should pay attention to trends and try to avoid relying on legal interpretations that are subject to open debate. The FTC’s recent non-compete ban tracks the laws of several states and has been discussed in mainstream news outlets for years. A business that was blind-sided by the ban did not do its homework.
- Find the Boundary and Erect Your Fence Ten Feet In. Very few real-world business issues have black-and-white solutions. Most problems—and potentially most solutions, occupy a gray area. And anything in a gray area may be subject to differing interpretations. Try to avoid making aggressive or unusual interpretations of existing laws and regulations critical to your business model. For instance, the FTC’s recent ban on non-competes still allows their use for company owners and executives, but not for general rank and file employees. If, for example, your pizza restaurant has historically had non-competes for its delivery drivers, then your business is vulnerable to this new interpretation not because the FTC has changed its views (which was predictable), but because your business relied on an interpretation of the law that has not always withstood scrutiny. More defined business processes can help ensure that your plans are well within the realm of settled law, and not subject to shifting bureaucratic whims.
- Have Fail Safes. Most businesses are regulated in some way, and rules sometimes change, permits and licenses sometimes get delayed, and a combination of overworked officials and poor luck can necessitate changes in business plans. Strive to build duplicate systems into your business whenever possible so that if one fails, the others can operate. For instance, if your company has previously relied on non-competes to prevent employees from sharing secrets, it can instead lean into confidentiality agreements and inventor’s agreements to achieve a similar purpose.
- Call Your Lawyer. Small businesses generally do not have the time to monitor legislative developments. Fortunately, your lawyers, accountants, and other advisors likely do. Think of us as a form of insurance against having your business up-ended by changes in law or business practice.
The best laid plans of mice and men might often go awry, but the wisest mice make sure they have a good plan B.
