FTC, SHRM, and individual states battle for non-compete supremacy.
Updated Non-Compete Rulings and Litigation
On April 23, 2024, the Federal Trade Commission issued a final rule to promote competition by banning noncompetes nationwide. The Society for Human Resource Management (SHRM) filed an amicus brief a month later in Texas in which it supported efforts to block the Federal Trade Commission's final non-compete Rule. The FTC seeks to impose a comprehensive ban on new non-competes with all workers, including senior executives. Although SHRM does not oppose the use of "reasonable, narrowly tailored non-compete agreements," it is concerned a "blanket ban" will "stifle innovation, limit training opportunities and harm business and workers alike."
First, SHRM argues that its members will otherwise suffer irreparable harm, specifically, "an economic burden in the form of additional administrative and organizational costs to change, adapt, and enforce company policies and agreements that remain unsettled and may be moot in time." SHRM questions what might happen if the FTC Rule stands but a court later invalidates it:
- Is an employer required to provide new consideration to resume the old arrangement?
- Is the non-compete duration tolled in the interim?
- Is a worker liable for breach in the interim?
- Will workers' wages be suppressed overall, or will hiring be stunted due to uncertainty and the additional economic burden on employers?
- These open questions could lead employers to reduce hiring and investments in innovations and training.
Second, SHRM claims that the FTC rule will harm workers and diminish training and investment in human capital. In support, it cites several studies showing that workers who sign non-competes as a condition of initial employment generally receive higher wages and more training.
Third, the FTC has failed to adequately justify its "near-total ban" on non-competes.
Fourth, the FTC failed to consider less onerous alternatives. For example, rather than ban nearly all non-competes, the FTC could have:
- imposed minimum compensation thresholds to enforce them,
- limited non-competes to highly compensated individuals or others with access to competitively sensitive information,
- prohibited non-competes in specific industries, or
- focused on geography and duration.
Maryland is following a nationwide trend restricting non-competition agreements for medical professionals. Maryland House Bill (HB) 1388 voids all non-compete and conflict of interest provisions in employment contracts for certain veterinary practitioners and veterinary technicians beginning June 1, 2024.
Moreover, effective July 1, 2025, non-compete and conflict of interest provisions for healthcare professionals licensed under the Health Occupations Article who provide "direct patient care" will be banned or restricted. Such provisions will be banned for professionals earning "total annual compensation" of $350,000 or less and materially limited for professionals earning more than $350,000. For professionals earning more than $350,000, non-compete provisions will be unenforceable if they include (i) a restrictive period of more than one year or (ii) geographic limitation of greater than 10 miles from the professional's principal place of employment. In addition, if a patient of a professional earning more than $350,000 asks, employers will be required to inform the patient when the healthcare professional who is subject to a restrictive covenant transitions to a new practice location.
FTC Announces Rule Banning Noncompetes | Federal Trade Commission
Commentary by: Raylea Stelmach
Edited by:
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