FTC Signals Interest in Noncompete Clauses

On July 9, 2021, President Biden issued an executive order aimed at promoting competition in the economy, including directing the Federal Trade Commission (FTC) to consider exercising its rulemaking authority “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”

On November 12, 2021, the FTC signaled it may be beginning to act on President Biden’s direction when it released for public comment its draft strategic plan for fiscal years 2022 to 2026, containing various strategic goals and objectives. These goals and objectives include “[p]rotect[ing] the public from unfair or deceptive acts or practices in the marketplace”; “[p]romot[ing] an open and competitive marketplace for the benefit of the public”; “[i]dentify[ing], investigat[ing], and tak[ing] actions against anticompetitive mergers and practices”; “[e]ngag[ing] in research, advocacy, and outreach to promote public awareness and understanding of fair competition and its benefits”; and “[c]ollaborating with domestic and international partners to check unfair methods of competition.”

The FTC further identified, in relevant part, the following strategies to help carry out and accomplish its stated strategic goals and objectives:

• “Reach out to workers: Provide workers and those looking for work, including those in marginalized communities, with practical, user-friendly educational resources and information to help them identify and report market power abuses and consumer protection violations in the marketplace.”
• “Investigate: Investigate potentially anticompetitive mergers and business conduct efficiently using rigorous, economically sound, and fact-based analyses that enhance enforcement outcomes for the benefit of consumers, workers, and honest businesses.”
• “Improve compliance: … Increase use of provisions to improve worker mobility including restricting the use of non-compete provisions.”
• “Focus on workers: Study and investigate the impact on worker wages and benefits from merger and nonmerger conduct, as well as non-compete and other potentially unfair contractual terms resulting from power asymmetries between workers and employers.”

The FTC enforces section five of the FTC Act, which prohibits unfair or deceptive acts or practices in or affecting commerce, but it is unclear whether the FTC has authority to regulate noncompete agreements between employers and employees (as opposed to between companies). Chairperson Lina M. Khan and Commissioner Rohit Chopra have stated that the FTC should engage in rulemaking under section five of the FTC Act to combat unfair methods of competition. Other commissioners, including Christine S. Wilson, have cast doubt on the FTC’s authority in this regard.

Whether the FTC will ultimately act on its strategic goals by attempting to exercise its rulemaking authority to limit noncompete clauses (and whether it has the authority to do so) remains to be seen. The FTC’s increased interest in noncompetes comes on the heels of various other federal agencies that have not historically been associated with labor and employment matters growing interested in this area of law. Thus, while employers do not necessarily need to take any immediate steps to review their noncompete provisions, companies may want to be prepared for changes that may be coming in the future—though any rulemaking by the FTC will likely be the subject of litigation challenging the Commission’s authority to issue a rule on noncompete agreements. Noncompete agreements remain a matter of state law. As the year-end approaches, employers may want to examine their agreements to ensure their validity under current state law.

Ogletree Deakins’ Unfair Competition and Trade Secrets Practice Group will continue to monitor and report developments with respect to regulations related to noncompete agreements and will post updates to the firm’s Unfair Competition and Trade Secrets blog. Important information for employers is also available via the firm’s webinar and podcast programs.