HR Policy Members Explore Implications of FTC’s Proposed Non-Compete Ban

HR Policy discussed FTC’s proposed non-compete ban and potential implications for employers’ talent strategies in a webinar this week. The webinar featured Miriam O’Sullivan, Group Vice President, Boston Scientific and Paul Covaleski, Antitrust & Competition Counsel for Accenture as well as Ani Huang, President and CEO of the Center On Executive Compensation and Gregg Hoff, Associate Counsel at HR Policy.   

Ms. Huang reviewed the results of our recent HRPA survey which indicated:

• Executives and employees eligible for equity compensation are primarily subject to non-compete agreements. This represents 10% or less of the workforce for 75% of the member companies that participated.
  
  
• 54% of respondents indicated that a complete ban of non-compete agreements would have a significant impact on their talent and compensation strategies.

Broad prohibition of non-competes. Mr. Hoff explained that as written, the proposed rule would prohibit the use of all non-competes with a narrow exception for business sales roles. Additionally, the rule includes a “de facto non-compete clause” which essentially could prohibit other restrictive covenants such as non-disclosure agreements if “written so broadly that [they] effectively preclude a worker from working in the same field.” A question remains about whether the rule would have an impact on the use of forfeiture clauses commonly used in severance agreements.

Non-competes critical for retaining expertise. Ms. O’Sullivan explained how important the use of non-compete agreements are for retaining critical expertise in her organization. The company invests heavily in highly specialized clinical training for many of their roles which is an integral part of their R&D and product life cycle strategies. 

Questions over FTC authority. Mr. Covaleski discussed the FTC’s increasing encroachment into labor and employment policy and questioned their authority to regulate non-compete agreements, as well as the implications going forward if the FTC is found to have authority to regulate.  He also expressed concerns about the growing number of states implementing more restrictions on non-compete agreements and the impact on employer policies. 

The FTC received over 30,000 comments during the comment period which will need to be reviewed before a final rule is issued, which is expected later this year.