Academics and advocacy groups—including nonprofit organizations and several major labor unions—have filed a petition with the Federal Trade Commission asking the agency to initiate the rulemaking process and ban non-compete agreements. The petitioners advocate regulations “to prohibit employers from presenting a non-compete clause to a worker (regardless of whether the worker is classified as an ‘employee’ or an ‘independent contractor’), conditioning employment or the purchase of a worker’s labor on the worker’s acceptance of a non-compete clause, or enforcing, or threatening to enforce, a non-compete clause against a worker.”
The 55-page petition (which can be found here) argues that non-compete clauses are “contracts of adhesion” that employees generally do not bargain over, and they harm employees by reducing their mobility. The petition further argues that the clauses impair market competition by favoring dominant firms and preventing challengers from acquiring talent.
The petition also asserts that, in lieu of non-competes, “employers have less restrictive methods of protecting their intangibles,” including “trade secret law, improved employee retention policies, and employment contracts,” all of which can be used by employers “to protect their intangibles against free riding without imposing a one-sided labor market restraint on workers.” The petition highlights possible use of the “inevitable disclosure doctrine,” a feature of some states’ trade secrets jurisprudence, as a less restrictive means to protect an employer’s intellectual property rights. (The inevitable disclosure doctrine permits courts to prohibit an employee from working for or starting a competing business if the new work would inevitably result in disclosing the former employer’s trade secrets. Not all states follow the inevitable disclosure doctrine, however.)
This petition echoes comments by Federal Trade Commissioner Rohit Chopra, a Democrat, who suggested back in September 2018 that the FTC ought to use its rulemaking authority under Section 5 of the FTC Act (which prohibits unfair competition) to limit non-competes. It is also part of a broader movement against non-competes at the state, federal, and international levels. (See here, here, here, and here as just a few examples of state efforts to curb non-competes—not to mention the proposed federal legislation and international efforts—in the last six months.)
We will monitor the FTC’s response to the petition.