SIFMA and FIA Urge FTC to Withdraw Non-Compete Proposal

SIFMA and FIA urged the FTC not to adopt its proposed "Non-Compete Clause Rule," which would effectively prevent employers from implementing non-compete clauses.

As previously covered, the FTC's proposed rule would prohibit employers from (i) entering into, or attempting to enter into a non-compete clause and (ii) representing to employees that they are subject to a non-compete clause. In putting forth the proposal, the FTC asserted that non-compete clauses harm workers and reduce competition by preventing workers from pursuing better opportunities and preventing employers from hiring qualified candidates.

SIFMA argued that if adopted, the proposal would:

• harm competition and the economy;
• end long-established practices of using non-compete clauses to protect business’ sensitive information;
• fail to implement an effective substitute for non-compete clauses besides "inferior alternative methods," such as trade secrets law and non-disclosure agreements; and
• create an "uneven playing field" for businesses under the FTC’s jurisdiction and those that are not.

SIFMA also called the FTC’s cost-benefit analysis of the proposal "unreasonable" because it was drafted using insufficient data. SIFMA said that any data the FTC does cite in its analysis overestimates the benefits and underestimates the costs associated with the proposal.

Further, SIFMA argued that the proposal is "impermissibly retroactive" as it would require "millions" of existing contracts to be modified. SIFMA argued that a federal agency may not implement a retroactive rule without express authorization from Congress.

FIA supported the "detailed comments" outlined by SIFMA in opposition of the proposal. FIA noted that "hundreds" of other associations urged the FTC to withdraw the proposed rule.

In comments, a coalition of associations of the US Chamber of Commerce argued that the FTC lacked legal authority to issue the rule proposal, and that non-compete clauses "serve vital business and employee interests" as well as pro-competitive interests. The coalition advised the FTC to address any issues of "unfair methods of competition" only through authority granted by Congress.