The Federal Trade Commission (FTC) has been making headlines recently with its efforts to ban noncompete agreements, but the pushback from the business community is growing. The U.S. Chamber of Commerce, a powerful industry group representing businesses of all sizes, has come out strongly against the FTC’s efforts, arguing that noncompete agreements are necessary to protect intellectual property and promote innovation.
Noncompete agreements are contracts that prevent workers from leaving their current employer and working for a competitor for a certain period of time. The FTC has argued that these agreements can harm competition, reduce wages, and restrict worker mobility. In recent months, the agency has been investigating the use of noncompete agreements by large tech companies. On January 5, 2023, the FTC issued a proposed rule that would prohibit the use of noncompete clauses in employment agreements all together. Specifically, the rule would require employers to:
- rescind all existing non-competes no later than the rule’s compliance date (TBD); and
- provide notice to current and former workers that their non-compete clauses are no longer in effect.
The U.S. Chamber of Commerce, however, has pushed back against these efforts. In a statement released last week, the organization argued that noncompete agreements are a “critical tool for businesses of all sizes” to protect their intellectual property, confidential information, and customer relationships. The Chamber also argued that noncompete agreements can actually benefit workers by promoting innovation and investment in training and development.
The Chamber’s statement has drawn criticism from labor unions and worker advocacy groups, who argue that noncompete agreements unfairly limit the job prospects of workers, particularly those in low-wage industries. They also argue that noncompete agreements are often used to suppress wages and prevent workers from negotiating better pay and benefits.
The FTC has invited public comment on the issue, and recently extended the deadline for such comments into April. Employers wishing to provide input and comment can do so through April 19, 2023 here.
The debate over noncompete agreements is likely to continue for some time, with both sides making strong arguments for their respective positions. Some states, including California, have already banned noncompete agreements in most cases, while others have recently passed laws limiting their use. For example, Utah has limited the temporal duration of a noncompete agreement in an employment agreement to one year. The FTC’s renewed focus on this issue is likely to spark continued debate and discussion, with the ultimate outcome still uncertain. Regardless, employers will still have tools available to protect legitimate business interests, i.e., intellectual property and customer relationships.
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