The Federal Trade Commission should stay the effective date of a new final rule to ban the use of noncompete clauses in employee contracts while a federal court considers a legal challenge to the regulation, the American Bankers Association, 59 national trade associations and hundreds of state and local business groups said last week in a joint letter to the agency.
The FTC rule makes it illegal for an employer to enter into a noncompete agreement with a worker, maintain a noncompete with a worker or tell workers they are subject to a noncompete. Noncompete agreements with senior executives finalized before the rule’s effective date of Sept. 4 remain in force. Existing noncompetes with other workers are not enforceable after the effective date. Immediately after the rule was issued in April, a group of associations filed a legal action challenging the rule. While the FTC does not have regulatory authority over banks, it does have authority over bank affiliates. The FTC also claims authority over bank holding companies.
“Although the noncompete rule’s legal fate remains in question, it is already imposing significant costs and uncertainty on the U.S. economy,” the associations said. “Companies are incurring substantial legal costs as they explore other tools to attempt to protect their investments, and workers are losing training opportunities and bargaining power to negotiate compensation.”
