Investment Group Calls On FTC to Exempt Execs From Non-Compete Ban

A trade organization representing fiduciary investment advisers is pushing back on the Federal Trade Commission’s proposed ban on non-complete clauses ahead of Wednesday’s deadline for public comments.

The Investment Adviser Association, which broadly agrees with the proposed ban on non-competes, called on the FTC to exempt senior-level employees involved in the creation of proprietary items, including strategy. In a letter to the FTC, the organization also asked that partners or other equity holders be subject to non-compete clauses in their contracts, because these employees could also carry sensitive trade information if hired elsewhere.

The pushback comes as the FTC is looking to follow up on an executive order from President Joe Biden to ban employers in all industries, including retailers and restaurants, from putting non-compete clauses in employee contracts, essentially penalizing workers for taking a job with a competitor. The ban, which already exists in states such as California, Illinois, and Massachusetts—but not the financial industry hub of New York—has drawn a close look from the financial services sector, as non-competes can be used to discourage employees with proprietary information or investment tactics from leaving for competitors.

States Lead

The FTC has argued that non-competes lower wages for workers by preventing them from accepting work elsewhere, and reducing their wages also has the effect of reducing wages for those not subject to non-competes themselves. Non-competes also prevent businesses from forming and, therefore, stifle innovation, according to the regulator. The FTC has noted that states which already ban non-competes have gotten along just fine, if not better, and the arguments against a ban have not been borne out.

The IAA, for its part, also requested that the FTC explicitly say that non-solicitation and non-disclosure agreements be excluded from the proposed ban so that employers may keep contract language penalizing an employee for poaching clients or soliciting them directly after leaving a firm. The proposal itself makes no mention of these types of agreement and is not written in a way that would include them, but given their importance to the industry by protecting sensitive client contacts and confidential information, the IAA asked that those agreements’ exclusion be made explicit.

The Washington, D.C.-based association also asked the FTC to scrap its retroactive provision and only enforce the ban on new contracts going forward. It also requested a transition period of 18 months before enforcing the ban.

Workers Follow

As it currently stands, the proposal would ban all non-compete contracts, which are defined as employment agreements with the effect of preventing an employee from starting a business or accepting employment elsewhere, The FTC proposal would supersede all related state laws.

According to the FTC, certain contract provisions, such as requiring training fees to be repaid upon leaving an employer or an overly broad non-disclosure agreement, can amount to a “de facto” non-compete agreement and would likewise be banned.

The ban would also prevent employers from representing to employees that they are subject to a non-compete, and it would require employers to notify all current employees within 45 days of the compliance date of the proposal that their duties under their non-compete are void. Affected businesses would also have to notify affected former employees, but only if their contact info is “readily available.”

The FTC will accept public comments through Wednesday, April 19.