SHRM Supports Pausing the Start Date of the FTC’s Noncompete Ban

SHRM filed an amicus brief May 28 in support of delaying the U.S. Federal Trade Commission’s (FTC’s) rule banning most noncompete agreements from going into effect while litigation is ongoing.

The brief was filed in the U.S. District Court for the Northern District of Texas as part of a lawsuit brought by tax services and software provider Ryan LLC challenging the FTC’s decision to ban noncompete agreements. Ryan is arguing that the FTC is not empowered to prohibit noncompete agreements. A separate lawsuit brought by the U.S. Chamber of Commerce challenging the FTC’s constitutional and statutory authority to write its own competition rules has been consolidated into the Ryan case. The rule is scheduled to go into effect Sept. 4, but legal challenges will likely extend that timeline.

“SHRM advocates for an injunction to be issued to stay the rule’s effective date and maintain the status quo until a final decision is made on whether the FTC has the authority to promulgate the rule,” SHRM said in the brief. “Failure to do so will disrupt human resource professionals that manage the recruitment, training and exiting of employees and rely on certainty during the hiring process.”

SHRM said that the issuance of the rule has already begun to have an adverse effect on HR professionals. “The employment agreement is the essential functionary in the worker-employer relationship and with the current uncertainty of the state of the law, neither workers nor employers can reasonably rely on their existing agreements until the legality of the rule is determined,” SHRM said.

Join SHRM and Michael D. Wexler, a partner at law firm Seyfarth Shaw, for a webcast on June 6 from 4-5 p.m. ET to learn about the potential impacts of the rule, how to prepare your workplaces for it, and the pending litigation that aims to block its implementation. A Q&A session will follow the presentation.

Two sessions at the upcoming SHRM Annual Conference will also focus on the topic, scheduled for Monday June 24 and Tuesday June 25.

We’ve rounded up articles and resources from SHRM Online and other outlets to provide more context on the news.

SHRM’s Argument Against the FTC Rule

In its amicus brief, SHRM stated that the FTC’s rule fails to strike an equitable balance between the interests of employers and employees and that workers will lose opportunities for job-related training.

“SHRM members invest considerable resources in providing training and educational assistance to their employees as well as effectuating the employee hire and exit process. Without the use of reasonable, narrowly tailored noncompete agreements, employers will be precluded from recouping their investments in employees as well as intellectual capital,” SHRM said.

SHRM supports allowing “well-structured, focused noncompete agreements” versus a blanket ban on such agreements. It is SHRM’s position that blanket bans stifle innovation, limit training opportunities and harm businesses and workers alike.

(SHRM)

FTC Bans Most New Noncompete Agreements Nationwide

The FTC’s sweeping rule would make all existing noncompete agreements except for those covering senior executives as defined by the FTC unenforceable and requires employers to provide notice to current and former workers that their noncompete clauses are no longer in effect.

(SHRM Online)

What Employers Should Be Doing Now

While the FTC’s new rule banning noncompete agreements faces legal challenges, workplace experts say employers should prepare for the rule by reviewing existing agreements, exploring alternatives, and focusing on retention efforts, which have taken on added importance.

(SHRM Online)

State Laws Would Be Superseded

All current state laws limiting noncompetes would be preempted under the new FTC final rule unless they provide greater worker protection than the rule. In recent years states have begun passing laws prohibiting or limiting an employer’s use of noncompetition agreements and other restrictive covenants in employment contracts.

(SHRM Online)