The FTC is proposing to ban most noncompete agreements for employers in a rule that would preempt state law. It should take more time to consider the impact of the proposal and to process stakeholders’ comments.
02/02/2023 1:05 P.M.
3.5 minute read
Trade associations representing several industries, including ACA International, have requested that the Federal Trade Commission extend its comment period on a proposal to ban employers’ noncompete agreements.
The proposal surfaced in January based on preliminary findings that noncompete agreements are an “unfair method of competition” and violate the Federal Trade Commission Act, according to the FTC. It also responds to an executive order from President Joe Biden directing the FTC to develop a proposed rule on noncompete agreements, ACA International previously reported.
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 It would also require employers to rescind existing noncompetes and actively inform workers that they are no longer in effect,” the FTC reports.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.
The organizations seeking an extension of the FTC’s comment period by 60 days say it is needed to assess the potential consequences of the rulemaking and develop insightful comments, according to the request (PDF).
“Moreover, there are significant legal questions that must be addressed by commenters,” the request states. “Among the issues raised by the FTC action is whether the Commission has the legal authority to issue such a rulemaking, the rule’s potential preemption of the numerous state laws and regulations on this issue, and how such preemption will alter the regulated community’s legal obligations.”
Comments on the proposal, which can be submitted through regulations.gov, are currently due March 20, 2023. In the two weeks after the comment period opened on Jan. 8, the FTC received more than 2,200 comments. As of Feb. 1, that number is at about 9,400, showing the importance of this issue for businesses and consumers.
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.
“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.
Therefore, extending the comment period would ensure regulated entities can fully and confidently provide comprehensive comments to the FTC.
Also of note, according to Brownstein, “many states enforce noncompete agreements in order to protect an employer’s trade secrets and proprietary information, where the employee earns above a specified salary threshold and/or where the employee is an executive or management-level personnel.”
While the proposed rule would ban “nearly all post-employment non-competition agreements, the rule does not impact other types of restrictive ‘employment covenants, such as confidentiality agreements, non-disclosure agreements or client non-solicitation agreements,’” according to Brownstein.
The FTC is hosting a public forum on noncompete agreements on Thursday, Feb. 16, in connection with its proposed rule to prohibit employers from using the agreements.
The forum, from noon to 3 p.m. EDT, will be webcast on the FTC’s website, transcribed, posted online, and included as part of the public record.
The commission will hear from a panel of speakers impacted by noncompete restrictions, as well as business owners who have experience with noncompete agreements, according to a news release from the FTC.
Members of the public will have an opportunity to comment online by signing up to speak through a webform. Public comment will be accepted on first come first serve basis during the time available.
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.