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Will the FTC Really Ban Non-Compete Agreements?

Will the FTC really ban non-compete agreements?

Maybe, maybe not.

Under the leadership of pro-labor firebrand Lina Khan, the FTC has taken steps towards banning all employee non-compete agreements, with only marginal exceptions.

The proposed ban is breathtaking in its breadth. Even existing non-compete agreements would be canceled. It’s not much of an exaggeration to say this move has stricken terror into the heart of corporate America.

And that may be the point. My gut tells me the FTC is employing the tried-and-true tactic of making its opening gambit so extreme that anything less will seem reasonable by comparison. In the end, businesses will gratefully accept a lesser set of restrictions.

My gut has been wrong before. But consider this: The proposed rule was accompanied by a 216-page statement (which I read so that you don’t have to) that includes alternative proposals the FTC would support if the full ban is not enacted.

For example, one alternative would still allow non-competes for senior executives. Another would ban them for workers below a certain wage level but allow them for high earners.

These proposals are more modest—and arguably better tailored to the problems that attracted the FTC’s attention in the first place—than a categorical ban. And they would meet with less resistance.

These proposals suggest the FTC might be open to compromise.

Make no mistake. Khan and others assuredly want a total ban. But trying to achieve this through the dictates of a federal agency raises a host of legal issues. In the short term, a federal court may block the ban. In the long term, the Supreme Court may conceivably hold that the FTC overstepped its bounds.

The FTC may get its way. Or it may get a partial win. Or it may lose outright. The outcome cannot be predicted with certainty. But one thing that is clear is that the federal government has non-competes in its crosshairs.

Businesses with trade secrets and other intangible assets to protect should prepare themselves for whatever might come next.

Maxwell Goss is a trade secret, intellectual property, and business litigation attorney. Max counsels clients regarding non-competes and represents clients in non-compete litigation and dispute resolution matters.