February 2, 2023
By: Bradley A. Hoppe, Kevin G. Cope, and Paul J. Buehler III
The Federal Trade Commission (FTC) sent a shockwave through the corporate world on Jan. 5, 2023, when it released a proposed regulation banning non-compete clauses in all but extremely limited circumstances. The proposed regulation was subsequently published for comment in the Federal Register on Jan. 9, 2023 and is open for comment until March 20, 2023.[1]
While organizations are still coming to grips with the potential impact of the proposed non-compete ban, certain industries and businesses may be insulated from its enactment. This is because the FTC’s authority to enact the proposed regulation, and thus enforce it, is limited by its inherent authority under the Federal Trade Commission Act (FTC Act). While the FTC Act empowers the FTC “to prevent persons, partnerships, or corporations” from using unfair methods of competition (which the FTC believes include non-competes), it expressly excludes banks, savings and loan institutions, federal credit unions, common carriers, air carriers and foreign air carriers, and persons and businesses subject to the Packers and Stockyards Act from its purview. Accordingly, these industries are exempt from the FTC’s proposed non-compete ban.
Further, the FTC Act only applies to corporations “organized to carry on business for its own profit or that of its members.” Therefore, true nonprofit corporations are not subject to the FTC’s regulatory authority. That said, what constitutes a true nonprofit corporation for purposes of FTC regulation is somewhat unsettled.
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