FTC Bans Non-Competes as Legal Battles Loom

This decision has potentially far reaching impacts as companies across a broad range of industries from banking to healthcare use non compete agreements when hiring. This ban. This bans non competes going forward as well as rescinds any existing terms. The FTC alleges employers have had an unfair advantage in hiring and that this would allow an estimated 30 million American workers to no longer be subject to non compete restrictions. But there is stark opposition, largely from the business community. This includes concerns former employees could share confidential information non competes are designed to protect. I spoke with the Chamber of Commerce earlier today. The group’s planning to sue the FTC later this week. If three people can decide what they think is an unfair method of doing business and then have the power by regulation to tell businesses what you can and can’t do, we’ve really opened a Pandora’s box here. They’re not the only ones against banning non competes. The trade group representing the securities industry wrote the FTC before the vote. They said the rule will hurt competition and upend a long established practice. Executives from some of the biggest banks like JP Morgan, Citigroup and Goldman Sachs sit on the trade groups board and serve as officers. Joe and Kaylee, this decision is expected to go into effect in about four months, but the future is uncertain with these looming legal battles. All right, Tyler, thank you so much. Bloomberg’s Tyler Kendall with an important story for our viewers and listeners today at Bloomberg. And to talk about it a little bit more, we’re joined now by Douglas Ferrer, director of the FTC’s Office of Public Affairs. Doug, it’s great to see you. Welcome back to the table. How do you answer the complaints from groups like the Chamber of Commerce who say, hey, how, how did three people make a decision like this for everybody? Well, thanks for having me back. What we would say first is our authority to do this is clear. The plain reading of the statute, the FTC Act that gives us the authority to do this says that we are charged with banning unfair methods of competition in the economy and it gives us the authority to write rules to do just that. So from our perspective, we’re on crystal clear legal authority and we also have precedent of courts agreeing with this authority over the long history of the FTC. And if I can just take a moment to say how important this ban is this this non compete, these not could be clauses cover 30 million Americans and really restrain and restrict their economic freedom to seek a new job or start a new business. So we’re proud of our action today. I just wonder why the FTC views this is action that needs to be taken at kind of the federal regulatory level and not left up to individual states. Because I believe this was an issue in the state of New York and ultimately Governor Kathy Hokel vetoed it. This is a really interesting question. Unlike a lot of policy issues, we have a natural experiment that’s occurred in this country. There are three states, California, Oklahoma and North Dakota, who don’t have non competes going back to 1800. So we have a lot of data that shows how trade secrets can be protected, but the economy can grow and workers can have more freedom to seek out new jobs and make more money. And so we’re making this policy knowing that its impact will be really positive based on that natural experiment. There’s a carve out here for certain individuals either making it a good deal of money or who are directors in the company. Part of the complaints that we hear about, hey, how do you control executive pay when they’re all allowed to cross the street just to make more money? Well, the carve out is less than 1% of all people bound by a non compete. And that’s a senior executive making over a certain threshold of money who also has a policy ability to influence policy of business. And you need to check both those boxes. You have to check both those boxes. But that non compete clause is only, it was only going to continue until that contract runs out. They cannot sign a new non compete clause with an employer. So it’s a total ban after that. But think about this, a senior executive can negotiate for a non compete clause, pay me more money, give me more time off, whatever that may be. If you’re a bartender, if you’re a security guard, if you’re a minimum wage worker being forced into a non compete clause, your ability to negotiate for getting something out of that is almost none. And so that’s why we want to make sure to ban these for the 30 million workers who are covered by it. And as you said, you do believe the FTC has the authority to do so, that you can effectively write this rule. If you can write this rule, is there a limit to the others that you can write? Because that’s essentially the Chamber’s concern is that this actually would set a precedent where the FTC is able to grab on to authority elsewhere with using that same standard. Well, I think again, the the reading of the text that we’re basing this on is clear. We have the authority to do this and the courts have agreed with that. I think the Chamber objects to the substance of the rule and is trying to make a legal argument about its constitutionality or its legality in a different way. But we certainly feel we have the authority to do this and the courts agree without a legal challenge. When would this take effect? So after it goes into the Federal Register, which should be any day now, it’ll be 120 days after that. And we’ve also made it easy for businesses to comply. We aren’t making them go back and rewrite contracts. We’re just having them declare them on unenforceable.