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An Opportunity to Tell the Government What’s Right with Non-compete Agreements

An Opportunity to Tell the Government What’s Right with Non-compete Agreements Background Decorative Image

The Federal Trade Commission seeks public comment related to its future role in restricting the use of non-compete clauses in employer-employee contracts. The comment period ends on March 11, 2020. Comments may be submitted electronically or in paper form.

The FTC specifically seeks comments on topics related to the legal basis and economic support for its promulgation of a Commission Rule restricting the use of non-competes in employment contracts, such as:

  • What impact do non-compete clauses have on labor market participants?
  • What are the business justifications for non-compete clauses?
  • Is state law insufficient for addressing harms associated with non-compete clauses?
  • Do employers enforce non-compete agreements contained in standard employment contracts? How routine is such enforcement?
  • 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?

The FTC’s focus on potential harm to the American workforce caused by non-competes is unsurprising. We have previously written about FTC and DOJ joint guidance to human resources professionals regarding the risk of antitrust violations in employment decisions.  In the wake of that guidance, the DOJ brought a civil enforcement action alleging anticompetitive conduct regarding “no-poach agreements” – which are agreements between employers not to hire or solicit one another’s employees.  Going forward, such agreements will be subject to criminal prosecution.

Ensuring fair competition in the labor markets remains a top priority for the antitrust agencies.  In September 2019, the DOJ Antitrust Division held a workshop on its role as an antitrust enforcer in the marketplace for American workers, including its power to investigate and challenge unlawful no-poach and wage-fixing agreements between employers, and in January 2020, the FTC hosted a workshop titled “Non-Competes in the Workplace: Examining Antitrust and Consumer Protection Issues.”  Indeed, last year DOJ even intervened in a private no-poach class action to obtain the right to enforce a settlement agreement against a defendant employer.

State attorneys general have also been particularly active in this area, with at least ten states and the District of Columbia opening investigations into fast-food franchise agreements that allegedly prevented employees from moving between different locations of the same corporate chain — perhaps spurring the FTC’s recent focus on this issue.

The slide deck and transcript from the January FTC workshop contain significant discussion of recent studies on the economic impact of non-competes, as well as the FTC’s authority to issue a regulation restricting the use of non-competes by American employers.

Over 280 comments have been submitted thus far, including on behalf of certain members of the United States Senate, writing “in support of FTC action that restricts the use of non-compete clauses in employment contracts,” and a separate comment by Senator Marco Rubio. Organizations such as the American Medical Association have also submitted comments.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.