NAM to FTC: Delay of non-compete clause

The Federal Trade Commission should delay the effective date of its final noncompete clause “to allow for judicial review,” the agency told NAM and about 200 national and state business groups last week.

What’s going on: “A short, voluntary delay would provide invaluable certainty about the rule’s potential effective date and save significant resources,” the organizations said.

• The proposal comes just over a month after the FTC voted to finalize a rule prohibiting non-compete agreements between employers and their employees.
• The regulation is scheduled to enter into force on September 4.

Why is it important: The groups told the Commission that even before the entry into force of the non-competition ban, business costs were rising rapidly, which was damaging the economy.

• “Companies identify existing non-competes and notify employees and former employees that their non-competes may no longer be enforceable,” they said. “Companies incur significant legal costs as they seek other tools to protect their investments, and workers lose training opportunities and bargaining power to negotiate compensation.”
• A non-compete clause would disrupt most U.S. manufacturing operations, according to a 2023 NAM study.

What else we do: Earlier this month, the NAM Law Center filed an amicus brief asking a federal court in Texas to suspend the non-compete agreement on the grounds that “(m)ufacturers use (non-compete) agreements as a primary tool to protect
their trade secrets and other proprietary information from misappropriation by competitors.”

• The final rule would weaken manufacturers’ ability to protect their commercial intellectual property from rivals and make it more difficult for the industry to attract and retain talent.