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Center FTC Letter Highlights the Business Necessity of Non-Compete Agreements for Senior Executives

Published on: October 8, 2021

Topics: ESG and Diversity & Inclusion, Executive Pay Plan Design

Following President Biden’s Executive Order on Promoting Competition in the American Economy, the Association’s Center On Executive Compensation urged the Federal Trade Commission (FTC) to distinguish between entry-level employees and executives (or those who have access to sensitive information) as it considers regulating the use of non-compete requirements.

Non-compete agreements are necessary for senior executives and employees with access to sensitive commercial information.  The Center's comments recommend that the FTC not implement a “one size fits all” ban on non-compete agreements.  The letter reiterated several points made in a February 2020 letter when the FTC last solicited comments on the subject, including that the broad, existing body of state law stipulating non-compete agreements must be reasonable in scope and duration to be enforceable.

The Center encouraged the FTC to draw a clear distinction between employee levels, specifically between the use of such agreements at the senior level and for specific employee classes with access to sensitive technical knowledge or customer/account information.  While the administration may have concerns about the power dynamics in employment negotiations for entry-level or hourly employees, the Center clarified that those power dynamics are minimal to non-existent for executives (who may hire specialized counsel to assist in employment agreement negotiations). 

Going forward:  The Center’s comments highlighted that non-compete clauses, when used responsibly, can help companies protect vital investments in their employees while ensuring the security of research and development, trade secrets, and institutional knowledge.  Given that President Biden specifically requested restrictions on non-compete provisions, it is likely the FTC will propose a rule that limits their use.  Given that the FTC’s comment period closed on September 30th, a proposal rule could arrive later this year. 

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