[Update: On April 23, 2024, the Federal Trade Commission voted 3-2 to issue its final noncompete rule, with only a few changes from the proposed rule. Analysis of the final rule, the changes, and what may come next are discussed in this blog post.]
On April 16, 2024, the FTC announced that it will hold a special Open Commission Meeting on April 23, 2024 to vote on its proposed rule to ban the use of non-compete clauses in employment contracts, which has been pending since January 2023.
As we reported then, the proposed rule, as drafted, would prohibit employers throughout the United States from entering into noncompete agreements with their employees. The rule would also apply retroactively, requiring employers to rescind all preexisting noncompete agreements and to notify all employees who had been subject to such agreements of the rescission.
In its announcement, the FTC stated that “the Commission will not be taking further comments from the public during the April 23 Open Commission Meeting” due to “the extremely high volume of public input already received” by the agency during the now closed public comment period. During the public comment period, the proposed rule received support from labor and advocacy groups, but also forceful opposition by other industry groups, including the U.S. Chamber of Commerce. In a lengthy comment, the Chamber of Commerce argued that the proposed rule exceeds the FTC’s statutory authority and promised to “go to court if necessary” to enjoin the rule if issued in its current form.
Notably, the procedure for the FTC’s April 23rd meeting indicates that the Commission may vote on a modified version of the non-compete rule rather than the proposed rule, which constitutes an almost complete ban on non-competes with few exceptions. Specifically, the FTC’s announcement states that:
At the start of the meeting, the Commission will vote on whether to authorize public disclosure of the proposed final rule that is under consideration. Then, Chair Khan will offer brief remarks. Next, if the Commission votes to authorize public disclosure of the final rule under consideration, the Office of Policy Planning will give a staff presentation on the final noncompete rule under consideration. Finally, the Commission will vote on whether to issue the final rule.
The reference in the announcement to a presentation by FTC staff on the “final” rule suggests changes to the initial rule proposed over a year ago.
If the Commission votes in favor of issuance, we expect numerous legal challenges to the rule will be heavily litigated. As we previously noted, such challenges will likely rely on the Supreme Court’s 2022 decision in West Virginia v. Environmental Protection Agency striking down an environmental regulation issued by the EPA to argue that the FTC’s proposed non-compete ban likewise exceeds the agency’s rulemaking authority as delegated by Congress. While we expect that these challenges will result in the FTC’s rule being enjoined before it takes effect, the Commission’s vote could nevertheless act as a catalyst to accelerate the passage of similar measures currently under consideration by states and municipalities, including a recent proposal by the New York City Council to ban all non-compete agreements between employers and workers in New York City.
We will monitor the April 23 Commission Meeting and continue to provide updates on these developments.
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