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HR Policy Condemns Proposed FTC Non-Compete Ban

HR Policy filed comments with the Federal Trade Commission (FTC) expressing its concerns with the Commission’s Proposed Rule to prohibit the use of non-compete agreements in most instances. The comments emphasize the benefits of reasonably tailored non-compete agreements, including safeguarding trade secrets and investments in employee talent, and urge the Commission to, at the very least, exempt executive-level employees and those with access to trade secrets from any prohibition. 

Unlawful rulemaking: The comments argue the FTC lacks the statutory authority and “clear congressional authorization” to regulate non-compete agreements in the first place, in violation of the major questions and non-delegation doctrines. Further, the comments assert that the Proposed Rule is arbitrary and capricious in violation of the Administrative Procedure Act. 

Mischaracterization of use of non-compete agreements: The comments argue that the Commission relies on flawed and inconclusive data to make several sweeping and erroneous assertions regarding the use, prevalence, and effects of non-compete agreements in the American economy. The Association emphasizes that most companies reasonably limit the use of non-compete agreements for specific purposes and employee groups, and that such usage is essential for protecting trade secrets and employee investments, among other reasons. 

Exemptions: Our comments urge the Commission to – at minimum – exempt executive-level employees and those employees with access to trade secrets and other proprietary information from any restrictions on the use of non-compete agreements. The Association also asks the Commission to clarify that forfeiture clauses or agreements are not included under the rule. 

Outlook: The FTC received nearly 30,000 comments on its Proposed Rule, and is technically obligated to review each one. A final rule could come before the end of the year. Please join us for a webinar on May 4, 2023, during which we will discuss the rule, HRPA’s comments, and other developments in non-compete regulation, including potential federal legislation. Registration can be found here.

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Authors: Gregory Hoff

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