FTC Proposes New Noncompete Regulations
This past year, I have written about state noncompete regulations in both Illinois and California. I noted that the Illinois regulation seems to be fairly well-tailored, so far as it still allows executives (and any employees making more than $75,000) to be subject to these agreements, includes notice requirements, and it categorically precludes noncompete agreements for low-wage workers.
I also wrote that the California noncompete ban goes to far, as it bans noncompete agreements across the board. While there are still trade secret, intellectual property, and similar concerns to protect companies. Even a narrowly tailored agreement, say to restrict a highly compensated private equity executive in Los Angeles from going to a different private equity firm in Los Angeles for six months post-employment, is banned under the new law.
Now, the Federal Trade Commission is proposing a new regulation that applies to noncompete agreements. The proposed regulation is being offered, purportedly under authority from the Federal Trade Commission Act of 1914, which allows the Commission to intervene in unfair methods of competition.
The proposed regulation looks a lot more like California, than it does on Illinois’ prohibition. President Biden said in a 2021 speech “These aren’t just high-paid executives or scientists who hold secret formulas for Coca-Cola so Pepsi can’t get their hands on it . . . A recent study found one in five workers without a college education is subject to non-compete agreements. They’re construction workers, hotel workers, disproportionately women and women of color.”
While state-level regulations on low-wage and unskilled labor is one thing, a federal regulation with an outright ban is likely to face significant legal scrutiny.
Florida Attorney Jonathan Pollard represents workers being bound to noncompete agreements. He wrote the following on LinkedIn about the proposed regulation:
A decade ago, when I showed up defending non-compete cases in Florida and talking about antitrust, 99% of everybody out there looked at me like I was a crazy person. Opposing counsel routinely made absurd statements like, “Antitrust? This case has nothing to do with antitrust. This is a simple breach of contract case.” I even had certain judges tell me they enforced non-compete agreements all the time and that they had no idea why I was talking about antitrust law. . .
Think about that for a minute. Non-compete agreements are clearly agreements in restraint of trade. Agreements in restraint of trade are supposed to be presumptively illegal— unless there is some compelling, ultimately pro-competitive justification. But in Florida, everybody has a non-compete agreement. Security guards. Janitors. Factory workers. Doctors. Nurses. Private school teachers. Engineers. Car salesmen. Administrative assistants. And the business and legal systems in Florida regard that as normal.
Time will tell if the proposed regulation will be modified significantly after receiving public comment over the next sixty days. It will also be telling to see what sorts of legal issues come up, and whether the FTC’s authority stemming from the over one hundred year old law will be enough. Perhaps this question would be best left in the hands of Congress.