FTC's Noncompete Proposal Is Based on Misrepresentations

The Federal Trade Commission kicked off 2023 by taking two aggressive actions against employers who have sought to protect their business strategies, intellectual property and customer relationships by holding their employees to agreements not to compete with them after they leave employment.

The FTC first announced that it had entered into consent decrees arising out of two enforcement actions accusing employers of engaging in alleged unfair competition merely by utilizing noncompetes; and the next day, proposed a rule that would ban virtually all noncompetes nationwide with retroactive and preemptive effect.

The FTC's announcement of these two actions was clearly coordinated, and the former may have been intended as a warning to companies considering publicly opposing the latter.

These lawless actions standing alone are troubling enough.

But in announcing them to the public, the FTC made numerous misrepresentations about the use and effects of noncompetes, presumably for purposes of garnering public support for a move of the sort that no state legislature has taken since the 1800s, despite repeated attempts over the years by opponents of noncompetes in some of the most employee-friendly states and cities in the country.

FTC Chairwoman Lina Khan repeated these misrepresentations in a widely read op-ed published in The New York Times earlier this month.

Khan asserted that noncompetes are regularly enforced against low-wage workers, such as fast-food workers, arborists and manual laborers. This is a common refrain that the media uses to draw viewers and clicks, but it is misleading at best.

While there are always outlier cases, the FTC cites no conclusive evidence that they are the norm. Indeed, they are not. Anecdotes are not evidence of a systemic issue.