TO COMPETE, OR NON-COMPETE? THAT IS THE QUESTION. BY PRINCE GIRN Associate General Counsel, Compliance Alliance On Jan. 5, 2023, the Federal Trade Commission (FTC) released a Notice of Proposed Rulemaking (“the proposed rule”) to essentially implement an all-out federal ban on non-compete clauses in employment contracts. Noncompete clauses generally restrict a person’s ability to work for a competing employer whether by name or in general. Many times, these clauses will carve out a radius in which a person is prohibited from working with competing employers and will have limits on the duration of the ban. However, this potential ban goes further than just your average non-compete clauses. There are other clauses in employment contracts that the proposed rule seeks to ban, clauses that are sometimes so broad in scope that they can be considered “de facto” non-compete clauses: • Non-disclosure agreements (NDAs) — also known as “confidentiality agreements” — which prohibit the worker from disclosing or using certain information; • Client or customer non-solicitation agreements, which prohibit the worker from soliciting former clients or customers of the employer (referred to in this NPRM as “nonsolicitation agreements”); • No-business agreements, which prohibit the worker from doing business with former clients or customers of the employer, whether or not solicited by the worker; • No-recruit agreements, which prohibit the worker from recruiting or hiring the employer’s workers; • Liquidated damages provisions, which require the worker to pay the employer a sum of money if the worker engages in certain conduct; and • Training-repayment agreements (TRAs), a type of liquidated damages provision in which the worker agrees to pay the employer for the employer’s training expenses if the worker leaves their job before a certain date. The latest move by the FTC may be traced or influenced by the recent attitudes towards these types of clauses and their overall chilling effects on the labor market and economy. The attitudes that the FTC is particularly focused on may be coming from the Biden Administration and recent enforcement actions by the U.S. Department of Justice Antitrust Division. On July 9, 2021, President Biden signed the Executive Order on promoting competition in America as part of a “whole-of-government effort to promote competition,” in which the order explicitly encourages the FTC to “exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” Recently, the Antitrust Division has criminally prosecuted employers for executing wagefixing and no-poach agreements against companies and individuals. Those attitudes may have paved the way for not only the FTC to bring forward this proposed rule but also bring its own enforcement against companies and their executives for imposing non-compete clauses just one day before the proposed rule. Further, to support the move, the FTC cites data that bolsters the central arguments of these types of clauses. The data the FTC presents supports the notion that noncompete clauses significantly reduce earnings for workers and cause exploitation, stifle entrepreneurship and new ideas, and reduce overall economic and marketplace freedom. Additionally, the FTC cites that there are other methods to protect competition without imposing undue risks to workers and burdens on the economy. Putting the ban in a nutshell, it would bar employers from imposing non-compete clauses in employment contracts. It would also require employers with non-compete clauses in effect before this rule to rescind all non-compete clauses that were to exist at the time the law was to go into effect. With respect to the abovementioned rescission of prior-existing clauses, the utah.bank 6
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