FTC Announces First Step Towards Regulation of Employee Non-Competes

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Foley & Lardner LLPAs we have noted previously, on July 9, President Biden signed an Executive Order on Promoting Competition in the American Economy. Among many other things, this Executive Order calls on the Federal Trade Commission (FTC) to “consider … exercis[ing] the FTC’s statutory rulemaking authority … to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” A webinar on this topic is available here; and more information about the Executive Order generally is available here.

Although the Executive Order was signed in July, the FTC has not yet taken any public action towards the regulation of non-competes. Part of the reason for this is bandwidth, as the FTC has been very busy advancing a progressive agenda in the areas of consumer protection and merger enforcement. Another part is political. The FTC is a five-member Commission, and no more than three of its members can be from the same political party. When President Biden signed the Executive Order, the FTC had three Democratic Commissioners and two Republicans. In October, however, one of the three Democratic Commissioners was confirmed to lead the Consumer Financial Protection Bureau, which as of this writing puts the FTC at a 2-2 political tie. The two Republican Commissioners have voiced skepticism about an FTC regulation on non-competes, with one arguing that employee non-competes are best regulated by the states and the other arguing that a federal regulation might not even be constitutional under the “non-delegation” doctrine. Therefore, the FTC is unlikely to make any major policy moves until after a third Democratic Commissioner is confirmed (which is unlikely to happen until late 2021 or early 2022).

In the meantime, however, the FTC is laying the groundwork for future rulemaking. As an initial step, the FTC recently announced a workshop (co-hosted by the Department of Justice’s Antitrust Division) to be held on December 6th and 7th, “to discuss efforts to promote competitive labor markets and worker mobility.” The agenda for the workshop is:

Over the two days, a series of panels, presentations, and remarks will address competition issues affecting labor markets and the welfare of workers, including: labor monopsony; the increased use of restrictive contractual clauses in labor agreements, including non-competes and non-disclosure agreements; information sharing and benchmarking activity among competing employers; the role of other federal agencies in ensuring fair competition in labor markets; and the relationship between antitrust law and collective bargaining efforts in the “gig economy.” Panelists will be invited to discuss potential steps antitrust enforcers can take to better target enforcement resources, improve public guidance, and pursue a “whole of government” approach to ensuring fair competition for workers and consumers by leveraging interagency resources.

Interested parties are invited to submit public comments on the topics covered by the workshop anytime between now and December 20, 2021.

In light of the Executive Order, it is reasonable to assume that the workshop will be used to develop a factual record to support a potential future FTC regulation on employee non-competes. For instance, before the FTC can issue a proposed rule, it must have reason to believe that the practices at issue in the rulemaking are “prevalent.” The FTC is also arguably required to show that the practices at issue are “likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.” We expect the two-day workshop to cover these and other factual topics, with the intent of putting the FTC in position to move quickly on the potential regulation of employee non-competes after a third Democratic Commissioner is confirmed.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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