On May 24, ABC joined the U.S. Chamber of Commerce and more than 200 national associations and state and local chambers in urging the Federal Trade Commission to stay the effective date of its final rule to ban noncompete clauses in order to allow for judicial review. The effective date of the rule is Sept. 4.

The letter to the FTC states, “Although the noncompete rule’s legal fate remains in question, it is already imposing significant costs and uncertainty on the U.S. economy. Businesses are identifying existing noncompetes and notifying employees and former employees that their noncompetes may no longer be enforceable. Companies are incurring substantial legal costs as they explore other tools to attempt to protect their investments, and workers are losing training opportunities and bargaining power to negotiate compensation.

“A brief delay would comport with the commission’s mission of enforcing federal law in a cost-effective manner. As set forth in the commission’s current strategic plan, the commission ‘strives to efficiently address the competitive concerns raised by a merger or business practice and works toward a solution that maintains competition in the marketplace without unduly burdening legitimate business activity.’ In keeping with this goal, a brief delay would provide invaluable certainty to the business community and, if the rule ultimately is enjoined, potentially conserve significant resources around the country,” the letter said.

On May 14, ABC joined a broad group of trade associations in filing an amicus brief in support of plaintiffs’ request for injunctive relief against the FTC’s final rule to ban noncompete clauses. Injunctive relief is appropriate and necessary to avoid the immediate and irreparable harm the FTC’s final rule would impose on the hundreds of thousands of American businesses—including construction companies—that appropriately rely on narrowly tailored noncompetes.

Ultimately, this vastly overbroad rule will invalidate millions of reasonable contracts around the country that are beneficial for both businesses and employees. ABC members have valid business justifications for utilizing noncompete agreements, such as protecting confidential information and intellectual property. This new rule will have a harmful effect on their companies as well as their employees, forcing companies to rework their compensation and talent strategies.

Background:

On April 23, the FTC voted 3-2 to issue its final rule to ban noncompete clauses, which goes into effect on Sept. 4. ABC issued a news release opposing the rule.

According to the FTC, under the new rule, existing noncompetes for the vast majority of workers will no longer be enforceable after the rule’s effective date. Existing noncompetes for senior executives can remain in force, but employers are banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives. Employers will be required to provide notice to workers other than senior executives who are bound by an existing noncompete that they will not be enforcing any noncompetes against them.

FTC Resources on the Final Rule:

• Summary
• Fact sheet
• Business and Small Entity Compliance Guide
• Final rule 

To learn more about the final rule and what happens next, read ABC general counsel Littler Mendelson’s analysis.

In April 2023, ABC submitted comments in opposition to the FTC’s unprecedented proposal to ban noncompetes. ABC also joined the U.S. Chamber of Commerce and 280 business groups in submitting comments urging the FTC to rescind the proposed rule.

The final rule is currently being litigated. Continue to monitor Newsline for updates.