Last week, the Federal Trade Commission (FTC) proposed a new rule that could potentially prohibit the use of noncompete agreements. The proposed rule would apply to employees, independent contractors, interns, volunteers, apprentices, and other types of workers.
If promulgated, the rule would prohibit the use of any agreement that is broadly crafted to effectively preclude a worker from working in the same field after the conclusion of employment with a particular employer. It further makes clear that the ban applies to any requirement for a worker to pay an employer or other party for training costs upon the termination of employment within a specified time frame when the payment is not reasonably related to the costs incurred by the employer.
In addition, the proposal includes a limited exception to 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.
Big “I” details the proposed rule in an article, here.
The idea has been floating around for the FTC for a while. Last summer the Biden Administration issued an executive order urging a dozen federal agencies to promptly tackle some of the most pressing competition problems across our economy and it included the proposed ban on non-compete agreements.
While the proposed rule is concerning, it is important to note a couple of things –
- The proposed rule is only the first step in the rulemaking process. Interested parties will now have an opportunity to “weigh in” on the proposed rule with the FTC through comment letters during the public comment period. The Big I is currently planning on submitting comments at some point during this period which will run through early March.
- The OIA Advocacy Committee is aware of the issue and is examining it closely. Depending on their discussion and decision, we may submit comments to the FTC and the Ohio Congressional delegation. Please send us your thoughts and comments on the issue.
- We do not believe the proposed rule applies to the following restrictive covenants: confidentiality requirements and non-solicitation/piracy provisions. Our understanding is this rule will only affect the non-compete provisions. While ideally, we want to maintain all of the current restrictive covenants for agency owners to utilize, in many instances, the non-solicitation/non-piracy provisions are more important than the non-compete agreements.
- There is also discussion of exempting highly compensated individuals from the rule or treating them similar to owners. This could help with non-owner producers.
The bottom line is that this issue is far from settled. The proposal is just the first step in the process, and we will now have the opportunity to weigh in on it.