Client Legislation
FTC cites unfair competitors legislation to justify proposed ban on noncompete agreements; will it maintain up in courtroom?
The Federal Commerce Fee has proposed a rule that may ban employers from imposing noncompete agreements on employees and impartial contractors.
In a Jan. 5 announcement, the FTC mentioned it has authority to behave beneath the ban on unfair strategies of competitors in Part 5 of the Federal Commerce Fee Act.
“Noncompetes hurt competitors in U.S. labor markets by blocking employees from pursuing higher alternatives and by stopping employers from hiring the very best obtainable expertise,” the FTC mentioned within the announcement.
A fact sheet from the FTC says noncompete agreements bind an estimated one in 5 U.S. employees. The agreements stop folks from working for a competing employer after their employment ends.
The proposed rule would ban new noncompete agreements and require rescission of current noncompete contracts. Typically, the rule wouldn’t ban different kinds of employment restrictions, except they’re so broad that they operate as a noncompete settlement. The rule would additionally embrace an exemption for noncompete clauses between the vendor and purchaser of a enterprise.
The FTC is in search of touch upon the proposed rule, together with on these subjects:
• Whether or not franchisees needs to be topic to the rule
• Whether or not noncompetes for senior executives needs to be exempted from the rule or topic to a rebuttable presumption of unlawfulness
• Whether or not low- and high-wage employees needs to be handled in another way
The FTC’s energy to undertake the legislation will possible be challenged in courtroom, based on Bloomberg Law. Throughout a press briefing, Lina Khan, chair of the FTC, cited a 1975 determination by the U.S. Court docket of Appeals for the District of Columbia Circuit, Nationwide Petroleum Refiners Affiliation v. FTC, which held that the fee could difficulty guidelines associated to unfair competitors.
Richard Pierce, a professor on the George Washington College Legislation College, advised Bloomberg Legislation that the choice is a weak justification.
“It’s extremely unlikely that it could be upheld by the Supreme Court docket at present,” Pierce mentioned. “I proceed to be extraordinarily skeptical that FTC has energy to make use of discover and remark rulemaking to outline an unfair technique of competitors.”
Bloomberg Legislation additionally cited a press release by Sean Heather, a senior vp on the U.S. Chamber of Commerce. Heather mentioned the rule wouldn’t survive as a result of “Congress has by no means delegated the FTC something near the authority it could have to promulgate such a contest rule.”
One impediment is the “main questions” doctrine, which holds that courts mustn’t defer to company statutory interpretations on questions of “huge financial or political significance.”
“We might see a major-questions doctrine problem arguing that whether or not noncompetes are good competitors coverage is one thing to be determined by Congress, not an company,” mentioned Catherine Fisk, a professor on the College of California at Berkeley College of Legislation, in an interview with Bloomberg Legislation.
Clifford Atlas, a principal on the legislation agency Jackson Lewis, told Law.com that the FTC was “swinging for the fences,” and there would “completely” be authorized problem to the rule.
Legislation.com famous that legislatures “in a handful of states” have banned noncompete agreements, whereas 21 others have imposed limits on them.
