Building on the momentum of existing state regulations and proposed federal legislation seeking to limit the use of non-compete agreements, the FTC hosted a January 9th workshop seeking to understand the impact of non-competes on employees and the economy as a whole and whether it should consider rulemaking restricting or banning non-competes, including for executives.
Support for FTC Regulation. Three of the five FTC commissioners have voiced support for regulating noncompete agreements and have advocated that the FTC take steps to curtail them. However, the commissioners did not endorse an outright prohibition on non-competes for all employees.
Panel of Experts Acknowledges Need for Different Treatment for Executives. The workshop included a panel of experts which acknowledged that non-competes may be appropriate for executives and highly trained employees (such as physicians, engineers, and those with advanced degrees). The panel noted that in these cases, a non-compete may increase earnings as they are included in contract negotiations and the executives are entering the agreements with eyes wide open and with the benefit of counsel.
Where to Draw the Line? The challenge is determining where to draw the line for non-compete prohibitions, according to the panel. Prohibiting non-competes only for low income and/or hourly employees risks a chilling effect on the mobility of middle-class employees, the panel stated. However, it acknowledged that these same middle-income workers may be actively involved in R&D or other sensitive projects such that allowing them to compete may materially harm the company.
FTC commissioners are specifically looking at how to the use their rulemaking authority to address this issue. Commissioner Rebecca Slaughter, a vocal critic of non-compete agreements, stated that “[w]e need not wait for legislation to tackle this issue head-on." The issue has been already been legislated by several states, including:
- California, Oklahoma, and North Dakota prohibit them in nearly all cases;
- Hawaii prohibits them for high-tech workers;
- Illinois, Maryland, Massachusetts, New Hampshire, Maine, and Rhode Island have prohibited them for nonexempt employees or employees making less than $50,000 (the actual income level varies in each state);
- Idaho does not prohibit them, but the duty of proof has shifted to former employer to prove harm;
- Washington prohibits them for employees making less than $100,000.