Center Comments Highlight Why Certain Non-Compete Agreements Are Needed to Protect Critical Commercial Information

February 14, 2020

The Association’s Center On Executive Compensation has submitted comments to the FTC following the Commission’s January 9 workshop on the impact of non-compete agreements on the labor force, with the Center recommending the FTC not implement a “one size fits all” ban on non-compete agreements, if it chooses to regulate at all.

The Center asserts that additional FTC rulemaking is unnecessary given that the broad body of existing state law stipulates non-compete agreements must be reasonable in scope and duration to be enforceable.  However, if the FTC were to consider rules on non-compete agreements, the Center encouraged the FTC to draw a clear distinction between the use of such agreements at the senior level and for specific employee classes with access to sensitive technical knowledge or customer/account information.

Non-competes are clearly appropriate and critical for executives and other senior employees.  The Center’s comments highlighted that Subscriber companies believe non-compete clauses, when used responsibly, can help companies protect vital investments in their employees while ensuring the security of research and development, trade secrets, and institutional knowledge.

Our comments reflect acknowledgement by panelists at the FTC hearing that while non-competes may be appropriate for executives and highly trained employees, there are significant concerns with the use of such agreements for hourly and middle-income employees.

Why this matters:  Overall, the tone of the FTC’s workshop was critical of non-compete agreements, driven by several high-profile cases of broadly applied non-compete agreements.  Federal bipartisan legislation has been proposed, with Sens. Todd Young (R-IN) and Chris Murphy (D-CT) introducing the Workforce Mobility Act in October of 2019 “to limit the use of non-compete agreements that negatively impact American workers.”  Further, California, North Dakota, and Oklahoma prohibit them in nearly all cases, while Washington prohibits them for employees making less than $100,000.  Hawaii has prohibited such agreements for employees in the technology sector.  FTC commissioners are specifically looking at whether and how to the use their rulemaking authority to address this issue.  Commissioner Rebecca Slaughter, a vocal critic of non-compete agreements, stated “[w]e need not wait for legislation to tackle this issue head-on."