David Bolno Files a Lawsuit Against Focus Financial Partners to Nullify Non-Compete
In May 2023, the National Labor Relations Board declared that non-competes, or the promise that employees of an organization will not join a similar organization, are typically illegal. This statement, which is rather bold since 30 million Americans are under some form of non-compete, is part of a bigger conversation in the country about what employers should and shouldn't expect from their employees.
David Bolno is a partner of a managing firm in Hollywood under the larger umbrella of Focus Financial Partners, and one of several partners who are disputing the nature of his contract. In addition to his contract going against state law, his lawsuit is also highlighting the inherent right of workers. We'll look at how his case is playing out against a larger backdrop of a national debate.
In 2018, David Bolno's firm was purchased by Focus, and the sale came with several stipulations attached to the buyout. Included in the contract was an explicit non-compete clause that all business managers agreed to sign. This agreement ended in the spring of 2023, which would theoretically leave the business managers free to pursue any other position in the industry. However, as the parent company, Focus is claiming that their non-competes were extended due to an amendment made to the contracts in July of 2022.
The rules of non-competes are necessarily a federal issue, though it's clear that labor groups and even the Federal Trade Commission is attempting to change this. As it stands now, though, it comes down to state law. David Bolno's lawsuit alleges that their claim is based on a law in Delaware. Meanwhile, Bolno's company is based in Los Angeles, which is where the lawsuit was filed.
They are asking the judge to base their ruling on California state law, which tends to favor the employees rather than the employers. Non-competes are allowed under the regulations in the Golden State, but the circumstances need to be substantial. In the case of a major sale, it made sense for all parties to agree to work together for a set period after. However, now that this time has passed, the managers are asking for the ability to move on if they so choose. David Bolno has a law degree from Temple University, and his lawsuit claims that his contract is improper and unenforceable under California law.
The FTC Rewrites the Rules
Section 5 of the Federal Trade Commission Act prohibits "unfair or deceptive acts or practices in or affecting commerce." Many would argue that non-competes fall under this ruling. With a non-compete, workers are no longer free to pursue their passions. Whether that's starting their own company, joining a new organization, or innovating within their current position, they can feel stifled by a contract that explicitly tells them what they can and cannot do. While contracts do have their place in employer-employee relations, the FTC is arguing that it's impossible to command an employee to stay where they are without restricting their creativity (and thus productivity and contributions in the working world).
In January of 2023, the FTC debuted a proposal that would severely restrict the nature of non-competes, nullifying some state laws and ultimately coming down on the side of David Bolno. The agency opened itself for public comment and received nearly 27,000 remarks on the proposed legislation. While many of the comments have been positive, particularly from Congressional Democrats and advocacy groups, not everyone is on board. Organizations like the US Chamber of Commerce have argued that the FTC does not have the rulemaking authority to make these kinds of stipulations. (They have also hinted that they would sue should the laws be passed.)
This is clearly a hot topic in the US on both sides, but the reality is that there is some real staying power behind the case for non-competes. The FTC estimates that should the rules change, wages could go up $300 billion per year, improving the paychecks of 30 million Americans. It may also even improve the gap between races and genders by more than 9%. The commission feels so strongly that it had already invested 6,000 hours and dozens of agency employees and contractors by February of 2023. The final draft is expected to be voted on by April 2024.
Freedom at Work
David Bolno has seen first-hand just how much of an effect a non-compete can have on his life and the lives of those around him. While he has not explicitly stated that he will leave Focus, his team has had conflicts with their parent company in the past. Focus has been accused of making several underhanded moves when acquiring and selling companies. While Focus denies hiding anything, it's clear that its leaders did withhold certain key information that might have altered the course of events.
There are few, if any, sectors of the economy that are immune to non-competes. An entry-level employee in a warehouse is as likely to sign a non-compete as a top surgeon in a hospital. There are clear benefits to employers in that they don't have to worry about an employee siphoning off revenue from their organization, but these contracts miss the bigger picture. David Bolno would argue that these coercions are made solely for the employer and that it won't take long for the power imbalance to affect the quality of the work an employee is producing.
Should the FTC ruling be passed, an employer will not be able to draft a non-compete or maintain a non-compete. That would make current non-competes, including Bolno's, unenforceable should the law pass in the spring of next year. This law may even extend to other standard agreements, such as non-disclosure agreements (if the agreements were written in general language).
David Bolno works with a variety of artists in his profession. Living in Hollywood, he runs across entertainers, musicians, and athletes of every variety. These talents are often making a tremendous amount of money per year, but they may not always know the best ways to manage it all. Bolno has been able to absorb the best of both worlds: he gets to work with some of the most creative people out there and help them preserve their wealth. If everyone was forced to sign non-competes, it's easy to see how the collective force would start to erode the spirits of those under the clause.
Bolno has built up his experience, which includes cash flow, financial planning, and business planning, after getting a substantial education. Graduating with a bachelor's from Duke and Cum Laude from Temple, he's learned how financial principles, legal interests, and corporate think can all intersect. This lawsuit is a way for him to stand up for himself, but it's aligned with a much larger push that would put more power back into the hands of employees. While he may not be able to wait for the FTC to pass their laws, he stands in support of giving everyone the means to come and go as they please. Indeed, this is the most direct path to a better economy.