FTC Proposes Blanket Ban on Non-Compete Agreements

The Federal Trade Commission this week released a notice of proposed rulemaking (“NPRM”) to ban non-compete agreements for all employees and independent contractors, with no exceptions except in cases between a buyer and seller of a business. The fact sheet is here and the full text is here.

The Center has advocated vigorously with the FTC over the past two years to prevent just such a blanket ban from being proposed, arguing 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. See HR Policy Association’s press release here.

Here are some highlights from the proposed rule:

• Timing. Comments on the proposal are due within 60 days of publication in the Federal Register. The date of compliance with the rule would be 180 days after the final rule is published. The rule would invalidate any existing non-compete agreements as of the compliance date, including with former workers.
  
  
• Covered workers. The ban includes all employees, including executives, and even independent contractors.
  1. Per the Center’s suggestions, the FTC has asked for comment on whether executives should be exempted from the ban and whether low- and high-wage workers should be treated differently. This is a very important and heartening provision – if enough comments are submitted, it may sway the FTC to revise the rule.
     
     
• “De facto” non-competes. The ban would include any provision that is determined to be a de facto non-compete based on a “functional test,” including NDAs, non-solicits, etc. The rule cites several examples, such as an NDA so broad that it effectively precludes employees from working at a direct competitor, or a training repayment agreement where the “payment is not reasonably related to the costs the employer incurred for training the worker.”

The rule was immediately characterized as “blatantly unlawful” by the Chamber of Commerce and will likely face legal challenges to its legitimacy, but there is no guarantee it will be overturned. HR Policy Association and the Center will convene a joint member working group to inform our comments to the Commission on the proposed rule. If you are interested in participating, please let us know!