CHRO Association Cautions Against Overregulation of Non-compete Agreements

In comments submitted to the Federal Trade Commission regarding non-compete agreements, the Association advocated against broad restrictions on their use and emphasized their importance to protecting employers’ investments.  

FTC Request for Information: The Commission solicited comments from stakeholders on how non-compete agreements unlawfully restrict competition, with a particular focus on blanket agreements for entry-level or low-wage workers. The Commission will use the received input to inform its enforcement strategy against such agreements.  

Our comments: The Association emphasized that most large companies use non-compete agreements for a small percentage of their employees, for very specific, investment-protection purposes, and in consideration of specific rewards (such as equity awards). Our comments also highlighted: 

• The potential negative consequences of overly restricting such agreements, including disincentivizing investment in workers and the loss of trade secrets and proprietary or confidential information. 

• Existing state laws and judicial relief already provide adequate safeguards against potential abuses.  

What’s next: FTC Chair Ferguson has already made it clear that the Commission will not pursue a rulemaking banning or restricting non-compete agreements (like the Biden FTC) and acknowledged that the Commission does not have the legal authority to issue such a ban.  

• However, the new FTC has also made it clear that it will make non-compete agreement abuse an enforcement priority, including initiating litigation against companies that use unreasonably broad agreements or for unnecessarily broad segments of their workforce.  

• The FTC will likely seek to make a public example out of a prominent company regarding alleged non-compete abuse – a tactic favored by the Trump administration in general.  

The bottom line: While another FTC non-compete ban is off the table, employers can expect the Commission to continue to be vigilant against their use in general.  Meanwhile, both parties in Congress continue to mull potential restrictions.