FMI, Other Groups Push Back on Noncompete Ban

Industry organizations claim that FTC’s proposed rule would affect businesses’ IP and innovation pipelines
Lynn Petrak
Senior Editor
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FTC
The FTC shared reasons behind its proposed rule on banning noncompete clauses for employees.

In the wake of a proposed rule by the U.S. Federal Trade Commission (FTC) to eliminate noncompete clauses for employees, FMI – The Food Industry Association is urging the agency to withdraw or narrow the scope of its ban.  FMI contends that certain noncompete agreements are essential in the food retailing industry, especially as technologies continue to advance.

“Noncompete clauses are a standard practice in many industries and serve to protect businesses by preventing employees from taking valuable intellectual property, trade secrets and other sensitive information with them to a competitor,” said Stephanie Harris, chief regulatory officer and general counsel at Arlington, Va.-based FMI.

The trade group emphasized that the FTC lacks the authority to rule on the matter, citing parts of the FTC Act.  Express authorization from Congress is needed for FTC to have the constitutional power to promulgate the proposed rule, FMI noted in its comments.  

At the least, the industry group suggested that the FTC modify its verbiage to exclude executive-level and other skilled workers who frequently collaborate on sensitive, competitive business information that could prove detrimental if shared.  “A ban on noncompete clauses would reduce businesses' ability to protect their intellectual property and could lead to reduced innovation, lower-quality products and services, and a less conducive environment for recruiting highly skilled workers,” added Harris.

FMI is one of many organizations to express concern about the proposed rule in a co-signed letter to the FTC. Other participating groups within and adjacent to the food and beverage and retail sectors include the American Bakers Association, American Beverage Association, American Trucking Associations, Association of National Advertisers, Consumer Brands Association,  Foodservice Equipment Distributors Association, National Association of Convenience Stores, National Association of Wholesaler Distributors (NAW), National Retail Federation and Retail Industry Leaders Association.

Earlier this year, the FTC extended the public comment period for the rule from March 20 to April 19. When proposing the rule in January, FTC explained that it would make it illegal for an employer to enter into a noncompete agreement with a worker, maintain a noncompete with a worker, or represent to a worker, under certain circumstances, that a worker is subject to a noncompete. According to the agency, the rule would “generally” not apply to other employment restrictions such as nondisclosure agreements.

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