GAO Report Could Support the FTC’s Proposal to Restrict Non-Compete Agreements

The Government Accountability Office (GAO) published a new report on the use of non-compete agreements based on a survey of mostly smaller employers that, according to the report, is “not representative of all private sector employers” and is accordingly less representative of non-compete usage generally. However, the findings could still be used to support the Federal Trade Commission’s proposal to restrict non-compete agreements in the employment context. The Association’s survey of large employers had findings quite different from what was cited in the GAO report.

Despite this limitation, the GAO study reported the following findings: 

• “Large employers” (confusingly defined as those having more than 500 employees) use non-compete agreements more than small businesses (defined as those with fewer than 20 employees) do. GAO’s survey found that of the total sample, only 55% of responding employers used non-competes for even a portion of their workers.
  
  
• Employers use non-compete agreements for employees ranging from executives to hourly workers. The question of who is covered by non-competes suffered the most from the survey selection bias, as respondents indicated that 84.5% use non-competes for all executives, 70% use non-competes for all salaried managers, and 53% use non-competes for all part-time employees (a finding contradicted by HR Policy’s survey). Only 28% of employers in the survey who use non-competes said they exempt hourly workers from such agreements.
  
  
• Nearly all employers use trade secret protection as a justification for using non-compete agreements. The top two self-reported motivations employers give for using non-competes are to protect trade secrets, intellectual property, and proprietary information, and to protect client or customer contacts.
  
  
• Employers rarely enforce non-compete agreements. The survey found that only 6% of employers that use non-compete agreements report frequently or very frequently enforcing them. By contrast, 73% report rarely or never enforcing them.

The GAO study was commissioned by Senators Chris Murphy (D-Conn.), Todd Young (R-Ind.), Elizabeth Warren (D-Mass.), Marco Rubio (R-Fla.), Ron Wyden (D-Ore.) and Tim Kaine (D-Va.), the lead sponsors of the bipartisan Workforce Mobility Act (S. 220 and H.R. 731), introduced earlier this year, which would essentially ban the use of noncompete agreements. 

Outlook: The FTC is expected to vote next April on the final version of its proposal to ban noncompete agreements in employment contracts. The Commission will consider this GAO report as they work towards finalizing the proposal. In the meantime, momentum for the Workforce Mobility Act making its way through Congress will likely increase considering the report’s findings. HR Policy Association submitted comments to the FTC, where we advocated against a blanket ban. Similarly, we will advocate against any legislation that proposes to unreasonably restrict the use of non-compete agreements.