On January 5, 2023, the Federal Trade Commission (FTC) announced its unexpected proposed rule change that would essentially ban noncompete agreements and require employers to rescind existing noncompete agreements. Following the announcement, the FTC invited members of the public to submit comments on the proposed rule. While the original public comment section was set to end on March 20, 2023, on March 6, the FTC voted 4-0 to extend the comment period until April 19, 2023. Anyone interested in submitting a comment on the proposed rule can do so
here. At the end of the public comment period, the FTC will consider whether to finalize the rule as written, revise the rule, or terminate the proposed rulemaking. To date, over 18,000 comments have been submitted.
In addition to its comment period, the FTC hosted a public forum on February 16, 2023 as an opportunity for different people to directly share their experiences with noncompetes. At the forum, a panel of six individuals of both workers and employers spoke to the impacts of noncompete contracts. As expected, employers condemned the blanket ban as too broad, while workers supported a complete ban. Those in support spoke out about depressed wages, lack of mobility, poor working conditions, and protracted litigation resulting from the use of noncompete agreements. Critics of the proposed rule highlighted concerns regarding the FTC’s lack of Congressional authority to implement such a rule, as well as its lack of foresight when it comes to how the rule would hurt those companies with high-level executives or employees with strategic or trade secret knowledge.
Assuming that a final version of the proposed rule is issued, the FTC is expecting a series of legal challenges either way. The U.S. Chamber of Commerce is publicly committed to fighting the FTC’s proposed rule, deeming it “blatantly unlawful.” Just days before the FTC’s public forum, Commissioner Christine Wilson, who publicly dissented against the FTC’s proposed rule, announced that she was leaving the agency, effective March 31, 2023, out of frustration with its chair, Lina Khan, who she claims has a “disregard for the rule of law and due process.” Commissioner Wilson issued a concurring statement for the unanimous 4-0 vote to extend the time for comments, noting that “[because] the proposed rule is a departure from hundreds of years of precedent and would prohibit conduct that 47 states allow, I would have supported extending the public comment by 60 days.”
Despite some of the explicit disapproval, it is highly unlikely the FTC will abandon its proposed rule altogether, especially given remarks by FTC leadership in support of workers, as well as President Biden’s comments during the State of the Union that “[w]e’re banning [noncompete] agreements so companies have to compete for workers and pay them what they’re worth.”
With heightened agency scrutiny and employee awareness of the issue, the proposed rule presents companies that utilize noncompetes with a reason to review and reevaluate current employee contracts.
