When the PGA Tour suspends golfers for joining LIV Golf, it correctly notes those golfers contractually agreed to not play elsewhere. That’s another way of saying the golfers agreed to a noncompete.
When a DI coach is recruited to join a rival school, when an executive at one sports business learns a competitor would pay them more, or when a sports journalist wants to leave for another media organization, each should review their employment agreement. There’s a good chance it contains a noncompete. Just ask Bobby Petrino, whose freedom to jump from his former job as head coach at Arkansas to another SEC school was restricted by a noncompete agreement.
What if noncompetes were illegal?
On Thursday, the Federal Trade Commission proposed a new rule that, if adopted, would prohibit employers from requiring employees to sign noncompete clauses and attempting to enforce them. The agency says these clauses interfere with “the freedom to change jobs” and are wrongly used to “block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand.” As the FTC sees it, noncompetes reflect an unfair method of competition and violate Section 5 of the FTC Act.
The proposed rule is far-reaching, going beyond the employer-employee relationship to also include independent contractors and “anyone who works for an employer, whether paid or unpaid.” The rule would compel that existing noncompetes be rescinded. The FTC believes that in an economy without these clauses, wages would rise by nearly $300 billion and about 30 million Americans would see expanded career opportunities.
According to the Sportico-reviewed book Mine!: How the Hidden Rules of Ownership Control our Lives, about 20% of American workers are subject to noncompetes and related measures. This sizable portion of the workforce includes numerous professionals, including in sports but also in such related industries as tech, health care and restaurants.
Mine! co-author James Salzman, a UCLA School of Law and UCSB Bren School of the Environment professor, told Sportico on Wednesday that noncompetes are particularly problematic when used to restrict athletes’ opportunities.
“The two strongest arguments offered for noncompetes are that it protects the ‘investment’ employers make in training employees,” Salzman said. “Why spend lots of money to train hires if they can quickly jump to competitors who weren’t willing to make similar investments in their workforce? And noncompetes protect employees from jumping to competitors to share trade secrets and firm client lists. These are legitimate concerns for certain industries, particularly those that are tech-based or service-based. But athletes? Noncompetes there are far harder to justify.”
The proposed rule would not cover nondisclosure agreements, which are also commonly used in employment. Pro teams used NDAs to make it more difficult for scouts, talent evaluators, analytics experts, trainers and others with valuable insights and trade secrets to take that knowledge with them to rivals.
Once the Federal Register publishes the proposed rule, members of the public will have 60 days to submit comments. The commission, led by FTC Chair Lina Khan, voted in favor of the proposed rulemaking 3-1, with Commissioner Christine Wilson the lone dissenter.
In a statement, Wilson warned the proposed rule “represents a radical departure from hundreds of years of legal precedent that employs a fact-specific inquiry into whether a noncompete clause is unreasonable in duration and scope.”
She cited a study from the financial services sector finding “negative unintended consequences of suspending noncompete provisions, including higher fees and broker misconduct.” Wilson also forecast a legal challenge to the FTC’s authority to propose such a reform, writing the FTC might “lack clear Congressional authorization to undertake this initiative.”