FTC Explores Viability of Employee Non-Compete Clauses

(December 7, 2019) The Federal Trade Commission (“FTC”) is exploring whether there is sufficient legal basis and economic support to restrict the use of non-compete clauses in employer-employee contracts.

The FTC has scheduled a workshop for January 9, 2020 and will accept public comments until February 10, 2020. The FTC’s interest in banning non-compete clauses follows a labor market workshop by the Department of Justice Antitrust Division in September.

Non-compete clauses in employment contracts restrict an employee from working or consulting with a competing entity for a certain period after leaving. Some states already restrict the enforcement of non-competes. For example, for a non-compete to be valid in Illinois, the employee must have worked for two years after signing the non-compete and the non-compete must be narrow in scope. In addition, Illinois law prohibits non-competes for low level wage workers. A non-compete. California bans non-compete clauses.

The FTC workshop includes panels that will explore the effects of non-compete clauses on labor market participants, their efficiency rationales, potential harm to workers, and whether the harms should be addressed through FTC rulemaking or enforcement.

In addition to the workshop, the FTC seeks public comment on the following questions:

• What impact do non-compete clauses have on labor market participants?
• What are the business justifications for non-compete clauses?
• Is state law insufficient to address harms associated with non-compete clauses?
• Do employers enforce non-compete agreements contained in standard employment contracts? How routine is such enforcement?
• Are there situations in which non-compete clauses constitute an unfair method of competition (UMC) or an unfair or deceptive act or practice (UDAP)? How prevalent are these situations?
• Should the FTC consider using its rulemaking authority to address the potential harms of non-compete clauses, applying either UMC or UDAP principles? What “gap” in existing state or federal law or regulation might such a rule fill? What should be the scope and terms of such a rule? What is the statutory authority for the Commission to promulgate a rule?
• Should the FTC consider using other tools besides rulemaking to address the potential harms of non-compete clauses, such as law enforcement, advocacy, or consumer/industry guidance?
• What additional economic research should be undertaken to evaluate the net effect of non-compete agreements? Should additional economic research on the empirical effects of non-compete agreements focus on a subset of the employee population? If so, which subset?

Comments may be filed at https://www.regulations.gov/docket?D=FTC-2019-0093.