Earlier this year, the Federal Trade Commission (FTC) issued a notice of proposed rulemaking (NPRM) that would ban the use of non-compete provisions and non-compete agreements between employers and workers. The NPRM invited members of the public to comment during a 60-day period, which ended on March 20.

Independent agency owners are among millions of insurance-related businesses that rely on non-compete provisions and agreements to protect their livelihoods. For that reason, and featuring extensive, direct feedback from PIA members, we submitted comments to the FTC to request that it withdraw its proposal in favor of a more appropriately tailored proposal that would address any alleged corporate overuse of such documents. 

Our comments set forth several arguments, a sampling of which are provided below:

• The FTC doesn’t have the authority to ban non-compete clauses and agreements, and its attempt to do so infringes on states’ rights to regulate contracts.
• The proposed regulation is overly broad. For example, its definition of “workers” includes employees, volunteers, interns, and independent contractors, whether paid or unpaid. It would ban future non-competes, but it would also rescind existing agreements by regulatory fiat—whether they involve existing workers or former workers.
• The NPRM would require employers to notify current workers of the rescission, of course, but it would also require employers to notify former workers. Moreover, employers would not be permitted to inform former workers using a public-facing method like publication of an announcement in a newspaper or on a website. Rather, the FTC proposal would require employers to notify former workers of the rescission via “individualized communication,” an endeavor that would be costly and burdensome for small businesses; the more former workers they have, the more burdened a small business would be.
• The proposal would also effectively limit the use of even legal agreements by indicating that some (non-disclosure or non-solicitation) agreements could be deemed de facto non-competes if they have a similar effect to a non-compete on workers. The NPRM’s distinction between legal and illegal workplace agreements is vague; as such, it would be difficult for owners of agencies to ascertain whether they are sufficiently compliant.
• The NPRM would also invite expensive, lengthy litigation by affected businesses to try to extract greater specificity from the FTC using the only tactic that would remain available to them.
• Significantly for affected insurance businesses, the FTC’s proposed non-compete ban would improperly preempt state law. In general, employment, trade secret, and antitrust law are all the purview of state governments and courts, not the federal government. Indeed, forty-seven states have passed laws permitting the use of non-competes, and this ban would invalidate every last one of them. If finalized as written, the NPRM would improperly preempt all state laws and regulations in this area.
• A non-compete ban would improperly invalidate existing contracts between consenting parties; its promulgation would constitute an improper restraint on trade as well as an illegal preemption of state law.

Now that the comment period has ended, the FTC will review the extensive feedback it has received, make changes if the agency feels it necessary, and probably issue either a revised NPRM or a final rule. If finalized as written, the ban would apply to both employees and independent contractors and would require employers to stop using non-compete provisions and agreements. The proposal would also require employers to withdraw existing non-compete provisions and agreements and inform workers subject to any such provisions or agreements that they are no longer in force. The FTC should promptly withdraw the proposed ban.

PIA members use non-compete provisions and agreements to protect their businesses, and we intend to continue to work with the FTC to alleviate its concerns and protect the right of businesses and workers to use non-competes.