TechServe Files Comments on FTC Proposed Non-Compete Ban

On April 19, 2023, TechServe Alliance CEO Mark Roberts filed comments on Federal Trade Commission proposals to regulate non-compete agreements. The FTC would retroactively ban all non-compete agreements between employers and workers. TechServe joined the U.S. Chamber of Commerce and other organizations questioning whether the FTC Act provided authority to regulate non-competes in this manner.

The Proposed Rule is limited to employer-employee relationships and generally does not impact business-to-business negotiated non-competes where neither business qualifies as a worker nor impacts non-competes agreed upon for the sale of a business. However, the ban would extend to “de facto” noncompete agreements, defined as other restrictive clauses drafted so broadly that they are, in effect, a non-compete.

TechServe members generally do not use non-competes but instead use other restrictive covenants to protect proprietary information and prevent solicitation of the former employers’ clients or the recruitment of the former employer’s workers.

Roberts expressed concern about the de facto provisions, “The Proposed Rule provides limited guidance on when a non-solicitation or other agreement would be considered a de facto non-compete. This is not enough to ensure that companies can be confident they can use these provisions to protect confidential information and business resources without running afoul of the rule.”

TechServe’s comments also objected to the sale-of-business exemption allowing non-competes. The exemption would require a seller to be a substantial owner, defined as 25% ownership. TechServe urged the FTC to eliminate any percentage. Finally, TechServe urged the FTC to withdraw the proposed rule or submit several changes, including removing the provision that bans non-competes retroactively.

Employer organizations and business groups plan to sue the FTC to block the Final Rule; with over 15,000 comments to review, the rule may not be finalized until next year. For more information, read TechServe’s comments.