The FTC announced yesterday that it will be hosting a special virtual open meeting on April 23, 2024, at 2:00 p.m. Eastern to discuss its proposed final rule regarding non-competes.

According to the FTC, on the agenda, is the FTC’s proposed rule to ban noncompete clauses:

The Commission will vote on whether to issue a proposed final rule that would prevent most employers from enforcing noncompetes against workers. The proposed final rule being considered would generally prevent most employers from using noncompete clauses. As the Notice of Proposed Rulemaking explained, noncompetes are a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses. The proposed final rule the Commission will consider stems from the notice of proposed rulemaking the FTC issued in January 2023, which was subject to a 90-day public comment period.

At the start of the meeting, the Commission will vote on whether to authorize public disclosure of the proposed final rule that is under consideration. Then, Chair Khan will offer brief remarks. Next, if the Commission votes to authorize public disclosure of the final rule under consideration, the Office of Policy Planning will give a staff presentation on the final noncompete rule under consideration. Finally, the Commission will vote on whether to issue the final rule.

After announcing the Notice of Proposed Rulemaking, the FTC received more than 26,000 comments from members of the public. Given the extremely high volume of public input already received and given that the public comment period on the proposed rule closed in April 2023, the Commission will not be taking further comments from the public during the April 23 Open Commission Meeting. The public, however, can watch the meeting via webcast, which will be available on the day of the event shortly before the meeting starts at FTC.gov. The event will be recorded, and the webcast will be available on the Commission’s website after the meeting.

The FTC previously proposed the rule in January of 2023 and sought the public’s comment. The final proposed rule is expected to be challenged by various business groups.

Employers should carefully monitor the breadth of the proposed final rule likely announced next Tuesday. While some advocated that the ban should be limited to low wage workers, FTC leadership has previously indicated that the ban should apply for all workers because they believe non-competes harm competition no matter if the impacted employee is a senior executive or low wage worker.

The business community is also closely monitoring whether the proposed final rule modifies the exception to ban on non-compete clauses between the seller and buyer of a business. In the initial proposed rule, the exception would only be available where the party restricted by the non-compete clause is an owner, member, or partner holding at least a 25% ownership interest in a business entity. Some commentators argued that such an exception should not have a percentage threshold or alternatively that any percentage threshold should be set much lower.

Additionally, employers are monitoring whether the final proposed rule includes a ban on other employment terms that purportedly amount to “de facto” noncompete clauses under the FTC’s proposed functional “effect” test. The FTC previously offered the following examples as terms that may be de facto non-compete clauses according to the agency:

i. A non-disclosure agreement between an employer and a worker that is written so broadly that it effectively precludes the worker from working in the same field after the conclusion of the worker’s employment with the employer.

ii. A contractual term between an employer and a worker that requires the worker to pay the employer or a third-party entity for training costs if the worker’s employment terminates within a specified time period, where the required payment is not reasonably related to the costs the employer incurred for training the worker.

While litigation is likely to ensue concerning the FTC’s authority to issue the non-compete ban and the issue may ultimately work its way up to the Supreme Court, impacted businesses should comply with applicable state non-compete laws and ensure that their trade secret protections are up to date and effective in the meanwhile.