Tap the Brakes on FTC Non-Compete Changes
The FTC has had non-competes in its sights for some time under the Biden administration. Going back to 2021 the administration instructed the FTC to do what is doing now – challenge non-competes. Here is what I said back then:
We’ve got a long way to go before this gets anywhere. First, of all there is a very real question of what restrictions the FTC can implement to restrict non-competes. I can tell you here in Texas we have an attorney general that challenges any federal action that infringes on state’s rights and I doubt FTC restrictions that impact the Texas Non-Compete Statue will go unchallenged. Second, the actual language recognizes that non-competes may be appropriate in certain situations – there isn’t going to be a ban. Finally, even if there was a ban there remains other items in an employer’s arsenal to use including: (1) non-solicitation provisions; (2) non-disclosure provisions; and (3) notice/garden leave policies.
So now the FTC is in the process of taking comments on the proposed rule. The comment period ends on March 23. In sum the FTC is attempting to ban non-competes and force employers to rescind those currently in place. Importantly, the rule does not prevent customer non-solicitation provisions. There are exceptions and exemptions that I will not address here but agreements used in buy/sale agreements are excepted.
After the close of comments the FTC can issue the rule or reopen the period for comments. After the rule is issued the “fun” will begin. Expect a lawsuit, in a favorable jurisdiction like Texas, to challenge the provision and the ability of the FTC to effectively “legislate”. A lot will depend on what ends up in the final rule. There is a very good chance the rule will run through the appellate courts and end up before the Supreme Court.
What should employers do now? (1) Follow FTC developments – specifically what the final rule is and how the FTC intends to implement the rule; (2) make sure your non-competes are tight and focused (always good advice); and (3) continue to use non-solicitation agreements.
