FTC Non-Compete Ban Slammed by Business Groups as ‘Unworkable’

A slew of business groups joined the US Chamber of Commerce in opposing the Federal Trade Commission’s proposal to ban non-compete agreements, arguing it would limit their ability to protect confidential information.

At a virtual forum hosted by the agency on Thursday, dozens of trade groups representing human resources professionals, retailers, for-profit hospitals, asset managers, insurance brokers, truck stops and others argued the FTC’s draft rule is overly broad. They said it should be narrowed to allow for non-compete clauses for executives and employees with sensitive information like customer lists.

“This one-size-fits-all proposal is unworkable and has the power to allow for trade secrets and other trade secret information to be given away to competitors and foreign adversaries by employees,” said Brian Walsh of the National Association of Manufacturers, which represents 14,000 manufacturing and industrial firms.

Last month, the FTC proposed a rule that would bar employers from entering into or enforcing non-competes nationwide. The Chamber of Commerce and House Republicans have slammed the rulemaking, alleging it exceeds the FTC’s authority.

Read More: House Republicans Challenge Khan FTC on Proposed Non-Compete Ban

The agency said it has already received 5,000 public comments on its proposal and will continue accepting submissions until March 20.

‘Gardening Leave’

A non-compete agreement prohibits employees, during or after their employment, from working for an employer’s competitors and from setting up a competitive enterprise themselves. Typically, the prohibition is confined to a period of time after employment ends. It also may be limited to a geographic area.

QuickTake: All About Non-Compete Clauses the FTC Wants to Ban

Jennifer Han, head of global regulatory affairs at the Managed Funds Association, which represents hedge funds and other firms, urged the FTC to tailor the rule to allow non-competes when a company agrees to pay for “gardening leave.” Under such leaves, which are common in the asset management industry, employees are paid during a cooling-off period between jobs.

While employer groups slammed the FTC’s proposal, dozens of unions and workers including doctors, nurses, veterinarians, home care workers and teachers spoke in favor of a ban. Daniel Kalish, an attorney with HKM Employment Attorneys who advises employees, said if an employer files a lawsuit seeking to enforce a non-compete, it can often cost a worker $100,000 to $150,000.

“Even if they win in court, it will bankrupt them,” he said.

Want Me? Pay Me

Kevin Borowske said he and his wife worked for a decade as building managers in Minnesota for a unit of FirstService Corp., the largest property management company in North America. After the company fired them, FirstService sought to enforce a non-compete that would have prevented them from taking another job as a building manager within the state for a year, he said.

The company agreed to release him from the requirement after news media attention, he said, though by then he had been forced to turn down a job offer.

“Our wages didn’t match inflation, and we weren’t free to go and seek other employment in the same field,” Borowske said. “If my employer wanted to keep and retain me, he should have paid me, rather than holding up the piece of paper, saying, ‘Guess what — you can’t go unless you want to leave your business.’”

FirstService didn’t immediately respond to a request for comment on Borowske’s account.

Read More: Chamber Vows to Sue FTC Over Non-Compete Ban If Rule Goes Ahead

To contact the reporter on this story:
Leah Nylen in Washington at lnylen2@bloomberg.net

To contact the editors responsible for this story:
Sara Forden at sforden@bloomberg.net

Peter Jeffrey

© 2023 Bloomberg L.P. All rights reserved. Used with permission.