The proposed rule to prevent restrictions on competition is expected to draw thousands of stakeholder comments—and already has, with at least 2,200 filed so far.
01/18/2023 3:40 P.M.
3 minute read
A new proposed rule from the Federal Trade Commission seeks to ban employers’ noncompete agreements and rescind existing agreements in an effort to increase wages and expand career opportunities for workers in the U.S.
Specifically, the FTC says the new proposed rule could increase wages by nearly $300 billion annually and grow career opportunities for about 30 million Americans, according to a news release.
The proposed rule would prohibit employers from:
- Entering into or attempting to enter into a noncompete with a worker;
- Maintaining a noncompete with a worker; or
- Representing to a worker, under certain circumstances, that the worker is subject to a noncompete.
“The proposed rule would apply to independent contractors and anyone who works for an employer, whether paid or unpaid. It would also require employers to rescind existing noncompetes and actively inform workers that they are no longer in effect,” the FTC reports.
It would also preempt state laws with less restrictive noncompete requirements.
According to ACA International member firm Barron & Newburger, credit and collections businesses that use noncompete agreements should review them now based on the FTC’s consent orders.
“We see the potential for a disgruntled former employee to complain to the FTC about a non-compete and possibly generate a civil investigative demand,” said the firm’s founding shareholder and vice president Manny Newburger. “While the FTC lacks jurisdiction over banks, we cannot help but wonder if the CFPB will look at similar issues in the banking sector. Still, noncompete agreements certainly have their place in this industry, and there is still law to support the right to utilize them.”
The FTC says the proposed rulemaking comes from preliminary findings that noncompete agreements are an “unfair method of competition” and violate the Federal Trade Commission Act. It also responds to an executive order from President Joe Biden directing the FTC to develop a proposed rule on noncompete agreements.
“Research shows that employers’ use of noncompetes to restrict workers’ mobility significantly suppresses workers’ wages—even for those not subject to noncompetes, or subject to noncompetes that are unenforceable under state law,” said Elizabeth Wilkins, director of the office of policy planning in the FTC news release.
According to a client alert from Brownstein Hyatt Farber Schreck, the variety of impacted entities could cause thousands of comments to be submitted to the FTC, which could delay efforts to finalize a rule. The regulator is responsible for reviewing all comments and public feedback and considering those in the revisions to the proposed rule.
Comments on the proposal, which can be submitted through regulations.gov, are due March 10, 2023. Since the comment period opened on Jan. 8, the FTC has already received more than 2,200 comments.
“Because of the FTC’s sweeping approach, any final rule is also likely to face legal challenges. However, such delays are far from certain. Therefore, employers should consider certain actions in response to and preparation for the rule’s development,” according to Brownstein Hyatt Farber Schreck.
For questions on the proposed rule or to provide input for ACA’s comments, contact ACA’s advocacy team at [email protected].
If you have executive leadership updates or other member news to share with ACA, contact our communications department at [email protected]. View our publications page for more information and our news submission guidelines here.