FTC's Simons Signals Potential Rulemaking on Noncompete Clauses

The chairman of the Federal Trade Commission said they are taking a deep dive into noncompete clauses, and if they don't like what they find, could take action, including through a rulemaking.

The FTC has only targeted rulemaking authority, but apparently the noncompetes are one of those targets.

That warning came in a Senate Appropriations Financial Services and General Government Subcommittee budget hearing with the FTC chairman Joe Simons May 7.

Sen. Chris Van Hollen (D-Md.) raised the issue, saying he was "Very concerned" about it.

Van Hollen was more focused on lower paid workers like sandwich-makers, camp counselors and hairstylists, but Simons indicated the FTC was looking at the high end, too.

On that higher end are the clauses that make it harder for broadcast and cable talent to be poached by competitors, the argument being that much money and time have been invested to brand them.

Simons said Treasury has estimated that up to 30 million workers are now bound by noncompete clauses, something Van Hollen had noted already in a letter to Simons (see below).

Related: FTC Chair Simons: Please, Don't Give Us Broad Rulemaking Authority

Simons has already said he was concerned about the clauses, but a slightly exercised Van Hollen asked what he was going to do about it, and not only the clauses but the mandatory arbitration "on the other side."

Simons said the FTC's economics bureau is reviewing the economic evidence of the impacts of these types of clauses, whether on the low end of the pay scale or the high. He said that could take a few months and then, if the FTC finds there is a basis for a rulemaking, then he would push for that and it could be done in a few months more.

He said that if the economic evidence isn't sufficient to justify a rulemaking, "then I think what we are going to try to do is develop the evidence." But he said that would take considerably longer.

More than a half dozen Democrats, including Van Hollen, asked Simons back in March to take the point on noncompete clauses and issue a rule limiting their use.

Legislation has been introduced targeting noncompetes, and a number of states have passed laws to limit them, but the senators clearly recognize that a faster route in a divided Congress would be by FTC fiat.

"Powerful companies have forced workers in almost every industry – from the drilling rig business, to sales and marketing, to sandwich making – to sign these insidious little clauses," they told Simons in the letter.

That letter backstopped a petition for rulemaking filed by a coalition of unions, consumer groups and others seeking a prohibition on the clauses.

They said the clauses are meant to undercut leverage for workers to negotiate for better wages and/or working conditions.

John Eggerton

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.