Employment Regulation Replace, January 17, 2023 – Worker Advantages & Compensation

THE FTC WANTS TO NUKE NONCOMPETES

Again in July 2021, President Biden issued an Government Order
calling on the Federal Commerce Fee (FTC) to “curtail the
unfair use of noncompete clauses.” It took a while, however the
FTC has lastly obliged. And now we all know how the FTC interprets the
phrase “curtail” (SPOILER: it isn’t narrowly).

On Jan. 5, the company proposed a brand new rule that will ban nearly
all noncompete clauses. The brand new rule would make it “an unfair
technique of competitors” for an employer to enter into, try
to enter into, or preserve a noncompete clause with a employee. So
new noncompete clauses could be prohibited, and outdated clauses would
be stripped of enforceability. However the proposed rule does greater than
impression the efficacy of noncompete clauses—it additionally governs how
employers focus on them. The rule prohibits employers from
representing to staff that they’re topic to noncompete clauses
when there is not any good religion foundation to imagine an enforceable
noncompete clause exists. It additionally requires employers to inform
staff (via “individualized communications”) that
they’re not topic to noncompete clauses. This discover
requirement applies to present and former staff. Though the
new rule does have a carve-out for noncompete clauses executed by
individuals promoting companies, it is secure to say it could
curtail noncompetes.

Three of the 4 FTC commissioners voted in favor of the
proposed rule. In keeping with FTC Chair Lina M. Khan, “[t]he
freedom to vary jobs is core to financial liberty and to a
aggressive, thriving economic system” and the proposed rule would
“promote better dynamism, innovation, and wholesome
competitors.” Elizabeth Wilkins, Director of the Workplace of
Coverage Planning, mentioned employers’ use of noncompete clauses
“considerably suppresses staff’ wages,” and the
rule would make sure that employers cannot “exploit their
outsized bargaining energy to restrict staff’ alternatives and
stifle competitors.” The lone no-vote got here from Commissioner
Christine Wilson, who known as the proposed rule a “radical
departure from tons of of years of authorized precedent” that
requires a fact-specific inquiry into the enforceability of
noncompete clauses. Wilson predicts that the proposed rule will
result in a “raft of unintended penalties” in addition to
“protracted litigation.”

EXPECT LEGAL CHALLENGES TO THE FTC’S PROPOSED NONCOMPETE
BAN

Commissioner Wilson’s forecast for a combat will most likely
show to be prescient. One entity that may probably enter the
litigation fray is the US Chamber of Commerce. Sean Heather, the
Chamber’s senior vice chairman, mentioned that the proposed rule
“is blatantly illegal,” and he is assured that the
rule “won’t stand.” Assuming the proposed rule turns into
a last rule (see a bit extra on that under), its destiny will nearly
definitely be determined by the U.S. Supreme Courtroom. The Courtroom’s
conservative majority has mentioned that broad legislative language
is not sufficient to authorize rules on important nationwide
points as a result of such language does not exhibit clear
Congressional consent. The legislative language in query right here is
Part 5 of the FTC Act, which prohibits ”unfair or
misleading acts or practices in or affecting commerce.” The
Courtroom may conclude that noncompete clauses represent a
important nationwide problem, and that Part 5 is not
sufficiently particular to point out that Congress empowered the FTC to
problem a rule as complete and impactful as the brand new proposed
rule.

HAVE YOUR VOICE HEARD ON THE NONCOMPETE BAN

However let’s not get forward of ourselves. For now, the proposed
rule is simply that: a proposed rule. The FTC won’t problem
a last rule till after the general public has had a chance
to remark. The FTC is especially taken with feedback on these
factors:

    • Whether or not franchisees must be coated by the rule

 

    • Whether or not senior executives must be exempted from the rule or
      topic to a rebuttable presumption quite than a ban

 

    • Whether or not low- and high-wage staff must be handled
      in another way beneath the rule

 

The deadline to submit feedback is March 10, 2023. You possibly can learn
the proposed rule right here. You possibly can learn
the FTC’s press launch (and discover hyperlinks to the FTC
commissioners’ statements) right here. And you’ll
discover directions on the right way to submit a touch upon the FTC’s
web site right here: www.ftc.gov/coverage/public-comments.

The content material of this text is meant to offer a basic
information to the subject material. Specialist recommendation must be sought
about your particular circumstances.

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