Looming Federal Ban on Non-Compete Agreements – What You Need to Know-Looming Federal Ban on Non-Compete Agreements

Video Transcription

Video Summary

The presentation by Andrew Kilberg, senior associate at Gibson, Dunn & Crutcher, focused on the Federal Trade Commission’s (FTC) proposed nationwide ban on non-compete agreements. Kilberg provided historical context, noting that non-competes have traditionally been enforced on a reasonableness basis under state common law, with some states banning or limiting them, such as California, North Dakota, and Oklahoma. He highlighted how antitrust law, particularly the Sherman Act’s “rule of reason,” has its roots in non-compete case law.<br /><br />The proposed FTC rule seeks to categorically ban non-competes and de facto non-compete agreements (including overly broad non-disclosure or training repayment clauses) for all workers, including independent contractors, applying retroactively to existing agreements. A narrow exception applies to non-competes linked to owners selling 25% or more of a business when working for the buyer. The rule would also preempt state laws that are less restrictive.<br /><br />Kilberg emphasized the rule’s broad scope and the uncertainty around definitions like “de facto” non-competes and enforceability of restrictive covenants like non-solicitation agreements. He noted bipartisan interest in restricting non-competes and ongoing federal legislative efforts proposing similar bans.<br /><br />Significant legal challenges are expected, including questions about the FTC’s statutory authority under Section 5 of the FTC Act, constitutional non-delegation doctrine issues, and weak empirical evidence supporting the FTC’s justification. The rule faces opposition from business groups like the U.S. Chamber of Commerce, which plans to sue if it is finalized.<br /><br />Kilberg advised employers to review all relevant agreements, engage in the public comment process by April 19, 2023, monitor developments, and consult legal counsel to prepare for potential litigation and adjust policies accordingly. He stressed that while the rule’s future is uncertain, non-competes remain a critical and evolving national issue.

Keywords

Federal Trade Commission

FTC

non-compete agreements

nationwide ban

Andrew Kilberg

Gibson Dunn & Crutcher

Sherman Act

restrictive covenants

Section 5 FTC Act

U.S. Chamber of Commerce