Earlier this year, the Federal Trade Commission (FTC) proposed a rule that would ban non-compete clauses between employers and workers. The FTC’s proposal makes a blanket statement “that non-compete clauses are an unfair method of competition” and would nullify existing non-compete agreements that are already in place.

There is a debate to be had regarding the efficacy of non-compete clauses and sensible reforms might be made to enhance employer-employee relations. However, the FTC’s apparent overstepping of its authority is the primary red flag for the business community regarding the proposed rule. If the FTC is able to successfully issue rules that impact business relationships to this extent, it alters the regulatory environment for American businesses entirely.

Quick Facts:

• Roughly one in five American workers – approximately 30 million people – are bound by non-compete clauses
• States maintain existing authority to regulate and/or ban non-competes
• Bipartisan legislation in Congress has recently explored the possibility of reforming non-competes
• The public can submit comments regarding the proposed rule until March 10
• Violation of the proposed rule could lead to penalties, including fines up to $50,000 per day of violation

In her dissenting statement regarding the proposed rule, FTC Commissioner Christine S. Wilson said it “represents a radical departure from hundreds of years of legal precedent that employs a fact-specific inquiry into whether a non-compete clause is unreasonable in duration and scope, given the business justification for the restriction. The Commission undertakes this radical departure despite what appears at this time to be a lack of clear evidence to support the proposed rule.”

States are already regulating non-compete agreements in more nuanced ways than the FTC’s blanket ban. Some states use salary threshold restrictions to keep lower earners from being subject to non-competes, while others require advanced notice to an employee or prospective employee for a non-compete to be considered.

The U.S. Chamber of Commerce has taken a strong stance against the proposal, with CEO Suzanne Clark vowing to “oppose the proposed regulation with all the tools at our disposal, including litigation.” U.S. Chamber senior vice president Sean Heather called the FTC’s proposal “blatantly unlawful”, noting that “Congress has never delegated the FTC anything close to the authority it would need to promulgate such a competition rule.”

If reasonable reforms are to be considered for non-compete agreements, they should be debated in Congress and in state legislatures, not mandated by unelected bureaucrats with, at best, questionable legal authority on the matter.

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