FTC Hosts Forum on Proposed Rule to Ban Noncompete Clauses
The Federal Trade Commission (“FTC”) recently hosted a virtual public forum on its proposed noncompete rule, which it previously issued in January and which we discussed here and here. The proposed rule would prohibit (subject to limited exceptions for business owners and in the franchise context) the (i) entering or attempting to enter into a noncompete clause with an employer, (ii) maintaining an existing noncompete clause, and (iii) representing to a worker that he or she is subject to a noncompete clause (where the employer has no good faith basis to believe the worker would otherwise be subject to such clause). Applying retroactively, the proposed rule would mandate that employers rescind active noncompete clauses and notify impacted employees.
The forum opened with remarks from FTC Chair Lina Khan, who stressed the projected economic benefits of the proposed rule, such as the increase in earning power and the benefits of worker mobility. Marie Choi, from the FTC Office of General Counsel, gave a brief overview of the rulemaking process, outlining that the public comment period is set to close March 20th, 2023, and that the published final rule will come at some point thereafter, taking into consideration public comments. Elizabeth Wilkins, Director of the FTC Office of Policy and Planning framed the proposed rule, led a panel discussion and opened up the forum to remarks from the public.
The panelists and the members of the public presented a wide range of perspectives on the potential ban on noncompetes. Notably, there were few advocates for a total ban on noncompetes, with most speakers recognizing instances (whether determined by wage, the protectable interest at issue, or job title) where noncompetes do make sense.
On each side of the argument, there were a couple of consistent themes to note relative to practical labor and employment concerns. Proponents of noncompetes stressed the distinct protection that noncompetes provide to supplement trade secrets laws and nondisclosure agreement provisions. They also focused on the active role of states, as opposed to the federal government, in handling this issue, and the fact that rules limiting noncompetes remove a benefit that some employees actually bargain for.
Advocates for a (total or near-total) ban on noncompetes focused on the chilling effect of noncompetes on both workforce mobility and business formation. They also focused on the difficulty that most workers have in understanding the noncompete agreements that they are signing and the prohibitively expensive cost of both fighting and enforcing noncompete agreements. Lastly, a popular perspective was that companies should instead focus on work conditions, providing increased pay and making changes to workplace culture such that their employees would want to stay, regardless of restrictive covenants in place.
Throughout both the panel discussion and the public comments, one theme was consistent: asking the FTC to extend the comment period, which is currently set to close on March 20, 2023, by at least 60 days. The Mintz Employment, Labor and Benefits team, as well as our colleagues in other practice groups, will continue to monitor for updates as the end of the comment period nears.