Protect your assets: FTC crackdown forges new strategies

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This spring, the U.S. Federal Trade Commission (FTC) took steps to stop pest control companies and other businesses from using non-compete agreements to protect client lists and proprietary data. The FTC generally deems non-competes to be “unfair methods of competition.”

The current situation

In an April 15 news release, the FTC held up the pest control industry as an example. The announcement noted it sent 14 pest control firms warning letters, advising them to ensure their employment contracts are free of unfair or anti-competitive clauses. When reached by Pest Management Professional (PMP) for comment, an FTC spokesperson declined to identify 13 of the 14 companies. The news release, however, referred specifically to Rollins Inc.

A representative of the Atlanta, Ga.-based company, whose brands include Orkin Pest Control, HomeTeam Pest Defense, Critter Control and dozens more, told PMP “the order issued by the FTC is consistent with our current practices. Last year, we eliminated the use and enforcement of non-compete agreements for nearly all employees, and we are committed to continuing this practice in the future. We want to maintain our teammates’ ability to seek employment elsewhere if they choose to leave Rollins, while also protecting our company’s proprietary information and confidential customer data. Our primary goal, and that of our brands, continues to be to empower our employees to deliver the best solutions to help our customers manage pest-related issues.”

Industry advocate

The National Pest Management Association (NPMA) has been an active participant in this debate for several years. Megan Striegel-Thomas, the NPMA’s senior director of public policy, emphasizes that the regulatory landscape has shifted considerably.

“Some states have enacted significant restrictions or outright bans, meaning that agreements drafted years ago may no longer hold up or may create legal risk if challenged,” Striegel-Thomas told PMP. At press time, Washington, California, Oklahoma, Wyoming, North Dakota and Minnesota already prohibit the use of these agreements.

A week after the FTC’s announcement, the NPMA hosted a webinar titled “NonCompetes in the Crosshairs: What the FTC’s Actions Mean for Pest Control Companies.” Speakers J. Scott Hudson, a shareholder with the law firm Zimmerman, Kiser & Sutcliffe, P.A., and Marci LaRouech, CEO of Seay HR, a preferred partner of the NPMA that provides fractional human resources leadership, are both based in Orlando, Fla. They underscored that the webinar offered educational, not legal, advice.

During the webinar, Hudson theorized why pest control was singled out, although the FTC also is going after other industries. It goes back to how owners trained technicians a few generations ago. “As far as the customer was concerned, the technician. was the company,” he said, noting that owners also share pricing information and on-the-job training with employees.

“Then some people, at the end of us providing all of that, giving them pay and benefits through the process, would decide, ‘I’m going to leave,’” Hudson explained. “They would slap a magnetic sign on their personal pickup truck and, maybe using chemicals they took from our chemical rooms, start a new business. They wouldn’t go out into a new territory. They would just say, ‘I’m just going to pick up the customers on the route here.’” In response, pest control industry use of non-compete, nonsolicitation and non-disclosure agreements became popular.

Seek protection

During the webinar, Hudson highlighted that the FTC is looking specifically at how non-compete agreements suppress wages and limit employee mobility within the marketplace. These agreements, which restrict where and when an employee can work after leaving a company, are increasingly viewed as barriers to a healthy economy.

The Economic Policy Institute called for a ban years ago because it considers them harmful to competition and employee wages.

This sentiment is echoed by some in the field. “I think noncompete agreements are unreasonable,” says Leah Garza, co-owner of Target Pest Control, Pearland, Texas. “There’s plenty of work for everyone. However, non-solicitation agreements should be in place to prevent poaching current customers.”

During the webinar, Hudson recommended developing twotiered agreements that distinguish between senior leaders — who may fall under certain legal exceptions — and general staff. He also stressed the need for pest control companies to obtain legal advice when dealing with employment contracts. Shawn Abbink advises getting away from non-competes entirely.

“Focus on creating rock-solid non-solicitation and non-disclosure agreements,” says Abbink, owner of Preferred Pest Solutions, Seneca, S.C. “They’re both enforceable, whereas vague and ambiguous noncompetes aren’t.”

This advice also goes for employees who are using your vehicles, equipment and materials off the clock. You can prevent employees from even considering “moonlighting,” says Garey Clark, president of Clark Pest Remedy, McDonough, Ga. “Your employee manual should have clear language about working side jobs.”

Involve human resources

Of course, the most effective way for a pest control company to stop a former employee from poaching customers is to build a culture where they don’t want to leave. During the NPMA webinar, LaRouech identified several “red flags” that human resources staffers should prevent at all costs, including:

▶ Inconsistent rule enforcement

▶ A lack of clear communication about expectations

▶ A lack of career growth and incentive opportunities, which heightens the allure for employees to start their own businesses

“Let’s give employees a ladder, not a ceiling,” LaRouech quipped. She pointed out that too often, when employees are promoted to supervisory roles, they aren’t given proper training to manage their teams — which can lead to the problems she mentioned.

“Many employees leave due to poor management,” she said. “Training supervisors to better handle teams can reduce ‘preventable turnover.’”

Final takeaways

At press time, the FTC’s Joint Labor Task Force remains active. Company owners must transition from traditional restrictive covenants to more targeted tools, such as non-solicitation and confidentiality agreements, that meet current state and federal standards.

Hudson noted in the webinar that the enforcement of these agreements often becomes emotional for owners. They find themselves at odds with employees they once considered friends, even family.

“A lot of times, these are people issues; these aren’t legal issues,” he added, noting that communicating with employees before things turn sour goes a long way.

“Let’s be proactive. Let’s be strategic,” LaRouech said, noting that help is available from the NPMA and other industry resources. “Let’s not try to navigate this alone.”