The current 60-day comment period is a remarkably short window for the business community to assess the sweeping effects of the startling proposal to ban noncompete agreements.
This week, the Big “I" and nearly 100 other trade associations urged the Federal Trade Commission (FTC) to extend the deadline for comments submitted in relation to the agency's proposed ban on the use of most non-compete agreements.
If implemented, the FTC's proposal would ban the use of most agreements and contractual terms that prevent an individual from accepting employment or operating a business after the conclusion of that person's employment with a particular employer. Agreements designed to block workers from securing employment elsewhere or starting a competing business within a particular geographic area or period of time after employment would largely be prohibited.
However, the proposal includes a limited exception that would permit the use of noncompete clauses between a seller and buyer of a business if the person restricted by the agreement is an owner, partner or member with at least a 25% ownership interest in the entity.
The FTC's proposal is startling and unprecedented in numerous respects. The FTC is asserting that a 1914 law that has never been used to issue such sweeping regulations grants them the power to do so now. Many legal observers, and one member of the FTC itself, vigorously challenge the notion that the agency has the authority to act in this manner.
One of the most commonly asked questions about the proposal is how it would affect other types of employment agreements that employers and workers enter into, including nonsolicitation agreements. However, the proposal would not prevent the use of all types of restrictive employment covenants.
The notice issued by the FTC last month distinguishes noncompete agreements from covenants that merely “affect the way a worker competes with their former employer after the worker leaves their job" and indicates that non-disclosure agreements, customer non-solicitation agreements, and other types of employment covenants would not be affected by the rule unless they are “so unusually broad in scope that they function as [noncompete clauses]."
The publication of the proposed rule in the Federal Register two weeks ago started a 60-day public comment period that is currently scheduled to close on March 20. This is a remarkably short window of time to require the business community to assess the sweeping effects of this proposal and provide meaningful feedback. Accordingly, the Big “I" and the other organizations asked for the comment to be extended by an additional 60 days. If this request is granted by the FTC, the new deadline for comments would be May 19.
The Big “I" will be submitting comments to the FTC whether the deadline is extended or not. Among other things, those comments will likely argue that the FTC lacks the statutory authority necessary to issue the rule, ask that the proposed exemption contained in the proposal for business sales be expanded and clarified, and urge the FTC to make clear that nonsolicitation and no-business agreements would be unaffected by the rule.
Wes Bissett is Big “I" government affairs senior counsel.