Although non-competes are generally viewed as matters governed by state law, the issue is increasingly under the scrutiny of federal lawmakers and regulators. The FTC has been studying non-compete clauses and their impact on competition for months, and on January 9, 2020, the Commission held a workshop on the topic. Experts, law professors, labor leaders, and Commissioners from both sides of the political spectrum spoke and urged action on non-compete clauses.
We listened in on the hearings and here are our key takeaways:
1. Commissioners Believe Non-Competes Are a Competition Issue
Commissioner Phillips (R) and Commissioner Slaughter (D) both argued that America has a labor mobility problem, and non-competes are a contributing factor. Both Commissioners urged more investigation, and some participants argued non-competes should be evaluated under the FTC’s authority to prevent unfair methods of competition.
2. The FTC is Considering A Rule, But It Is Likely 2-3 Years Away and Faces Legal Hurdles
Both Majority and Minority Commissioners support more investigation into non-competes, but there are numerous legal hurdles involved. For example, the FTC has the vague authority to address “unfair methods of competition,” but Commissioner Phillips argued acting under this broad grant of authority raises constitutional concerns. There is also uncertainty about which procedures the FTC needs to invoke in order to promulgate a non-compete rule. Given these issues and the fact such action would insert the FTC into an area it previously has not regulated, few expect the FTC to take any action within in the next year and many think any rulemaking is at least two to three years away.
The Upshot: Only once in 115 years has the FTC issued a rule under its competition authority, and that rule was never enforced. But non-competes may be different. Commissioners on both sides want to learn more. Any new rule is still likely two or three years away (at the earliest), but the FTC’s hearing indicates they are taking the topic seriously and this is worth watching. We will continue watching and will report to our readers as developments warrant.