THE FTC EXTENDS THE COMMENTS PERIOD ON ITS PROPOSED NON-COMPETE BAN WHILE CONTINUING ITS ENFORCEMENT ACTIONS AGAINST EMPLOYERS

By Melissa R. Lock

March 24, 2023

Fulfilling the objectives of President Biden’s 2021 Executive Order on Promoting Competition in the American Economy, the Federal Trade Commission (“FTC”) continued its all-out onslaught on non-competition agreements in employment relationships.  President Biden’s Executive Order urged the FTC to take action against the unfair use of non-compete clauses and other clauses that may unfairly impede workers’ wages and mobility.  To this end, in January, the FTC unveiled its highly controversial proposed ban on non-compete provisions in employment relationships, while simultaneously utilizing newly-announced authority to sue companies and executives for imposing overly restrictive non-competes on their employees.

FTC’s Proposed Ban on Non-Competes

The highly publicized proposed ban has three key components.  First, it declares all non-compete agreements in employment relationships to be “unfair methods of competition,” making it illegal under federal law to enter into or maintain non-competes with workers.  Second, it requires employers to rescind existing non-competes.  Third, it requires employers to notify current and former employees of the rescission and provides a form for such notices.  The proposed rule is currently open for comment, and the comment period was recently extended from March 20 to April 19, 2023.  Once finalized, the rule will become effective 180 days after the final version is published and will most certainly be subject to legal challenges thereafter. 

FTC’s Enforcement Actions Against Employers

While it is far from clear that the proposed ban will ultimately become law, the FTC has begun suing employers under its newly asserted Section 5 “stand alone” enforcement authority, which is unaffected by the success or failure of the proposed ban.  In the past, the FTC needed to allege and prove an unreasonable restraint of trade under traditional antitrust standards in order to strike down a noncompete.  In four enforcement actions against private employers this year, the FTC alleges vaguely that the agreements are “unfair” and have a “tendency or likely effect of harming competition, consumers and workers.”  In all four actions, employers have reached settlement with the FTC, with the most recent settlement announced by the FTC on March 15th.  The settlements require the employers to cease and desist use of their non-competes and from enforcing, threatening to enforce or imposing non-competes on their employees, and also require them to provide copies of the order to current and past employees who were subject to the non-competes and notify any new employees for the next 10 years that they may freely seek a job with any company or person.

Next Steps For Employers

The FTC’s proposed rule and enforcement actions could have serious consequences for employers who utilize non-compete agreements with their employees.  Although the proposed ban may ultimately be struck down, employers should review their non-compete agreements to ensure they are defensible under existing law to prepare for the possible onslaught of heightened challenge under Section 5.  Some of the questions employers should ask themselves are:

  • Are our non-competes reasonable in duration and geographic scope?
  • What types of employees do they apply to?
  • Do non-competes protect legitimate business interests, like protecting trade secrets and other confidential or proprietary information?
  • Are our non-competes narrowly tailored to accomplish our objectives?
  • Have we explored alternatives to non-competes, such as non-disclosure or customer non-solicitation agreements?

If you have any questions about the FTC’s actions related to non-competes or would like assistance evaluating your existing non-competes, please contact Melissa Lock at 215-292-2103 or mlock@lockgordon.com.

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