National Restaurant Association and Restaurant Law Center Request FTC Withdraw Proposal on Non-Compete Clauses

Washington, D.C. – Today, the National Restaurant Association and the Restaurant Law Center (Law Center) submitted comments to the Federal Trade Commission asking it to withdraw its Notice of Proposed Rulemaking (NPRM) on non-compete clauses. In the comments, the organizations assert that should this proposed rule go into effect, there are likely to be unanticipated consequences that could harm employees and consumers in the restaurant industry rather than helping them, and could reduce competition rather than increasing it.

The joint opposition to the proposal is based on three grounds:

1. Restaurant owners use non-competes sparingly with senior-level employees to protect confidential information. The proposed change is unnecessary and counterproductive because restaurant owners do not typically use them with restaurant managers or hourly employees.
2. The Commission lacks clear Congressional authorization to ban or regulate non-compete agreements, which would be required for a Commission’s NPRM on non-competes.
3. The regulation of non-compete clauses has been a state law issue for over 200 years. 

The Association and the Law Center focused on setting the record straight about the use of non-competes in the restaurant industry, which only uses them sparingly with senior-level employees to protect business owners’ most valuable and confidential information. When such employees are asked to sign an agreement voluntarily, it is in exchange for agreed upon considerations such as long-term incentives, discretionary bonuses, promotions, or generous separation packages. 

“While the public face of the restaurant industry may be the many wait staff, hostesses, bartenders, line cooks, dishwashers, and others who provide the backbone of an operation, restaurant owners almost never use non-competes with these types of employees,” said Jordan Heiliczer, director of labor and workforce policy at the National Restaurant Association. “In fact, it’s not uncommon for hourly employees to move between jobs at two competing restaurant brands, all with the knowledge of their restaurant employers.”

Fundamentally, the Association and Law Center hold that the FTC does not have the legal authority to ban non-compete clauses and that the regulation of these agreements should fall to the state legislatures, who have been regulating them for more 200 years.

“The Commission has no authority to promulgate this regulation and moving forward would only lead to costly and burdensome litigation,” said Angelo I. Amador, executive director of the Restaurant Law Center. “The Commission is unable to point to clear congressional authorization for the power it claims to have to issue this proposed regulation.”

Concerns about the economic impacts of the rule on small businesses was the main reason the Small Business Administration (SBA) Office of Advocacy submitted comments asserting that a “universal ban on non-compete clauses is inappropriate,” and that alternative approaches should minimize the impacts on small entities.  

Read the full National Restaurant Association and Restaurant Law Center joint comments here.