FTC Proposes Eliminating Non-Compete Clauses

The Federal Trade Commission (FTC) chair, Lina M. Khan, recently announced the commission’s intent to adjust a rule that would prohibit non-compete agreements by workers or independent contractors. Their rationale? Unfair competition—which, therefore, falls under the purview of the FTC. This could have a huge impact on the cybersecurity and IT industries, and open up many more workers’ availability if non-compete clauses were eliminated.

The FTC estimated that approximately 30 million workers are encumbered by non-compete agreements. The FTC argued that, if such limits were not in place, these individuals could consider leaving their jobs and perhaps increase the competition for good, high-quality and well-paid positions. The FTC calculated that this change in the rules would increase the wages of Americans between $250 billion and $296 billion per year.

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The proposed rule could help close the cybersecurity skills gap by making it easier for highly sought-after tech talent to more easily switch jobs and companies.

“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” FTC chair Lina M. Khan said in a statement. “Non-competes block workers from freely switching jobs, depriving them of higher wages and better working conditions and depriving businesses of a talent pool that they need to build and expand. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation and healthy competition.”

The FTC’s Khan did not just pull the idea out of thin air. President Biden, on July 9, 2021, issued an executive order that promotes competition. The EO called on multiple agencies and departments, including the FTC, to protect conditions of fair competition. The EO specifically called out the FTC chair, and said, “To address agreements that may unduly limit workers’ ability to change jobs, the chair of the FTC is encouraged to consider working with the rest of the commission to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”

The FTC’s statement highlighted how the proposed rule would “make it illegal for an employer to:

  • enter into or attempt to enter into a non-compete with a worker;
  • maintain a noncompete with a worker or
  • represent to a worker, under certain circumstances, that the worker is subject to a non-compete.”

The ABA Journal pointed to the likelihood of legal challenges should the FTC’s proposed ruling be enacted into law. The ABA Journal noted that George Washington University Law School professor Richard Pierce commented to Bloomberg Law that the FTC’s justification is weak. He specifically said, “It’s highly unlikely that it would be upheld by the Supreme Court today. I continue to be extremely skeptical that the FTC has the power to use notice and comment rulemaking to define an unfair method of competition.”

Catherine Fisk of the University of California at Berkeley School of Law noted in an interview with Bloomberg Law, “We could see a major-questions doctrine challenge arguing that whether non-competes are good for competition, policy is something to be decided by congress, not an agency.”

The FTC has opened its portal for public opinion and comments on this proposed rule change through March 10, 2023. As of January 20, more than 4,000 comments have been submitted.

Christopher Burgess

Christopher Burgess (@burgessct) is a writer, speaker and commentator on security issues. He is a former Senior Security Advisor to Cisco and served 30+ years within the CIA which awarded him the Distinguished Career Intelligence Medal upon his retirement. Christopher co-authored the book, “Secrets Stolen, Fortunes Lost, Preventing Intellectual Property Theft and Economic Espionage in the 21st Century”. He also founded the non-profit: Senior Online Safety.

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