A final law, which may end noncompete employment contracts, was announced by the Federal Trade Commission on Tuesday. Provided it survives potential legal issues, the moratorium will affect many areas of the sports business —including professional sports leagues, support and NIL deals, and contracts for coaches, scouts and staff executives.
The prohibition, which will take effect 120 days after the law is published in the Federal Register, may prevent employers from entering into or imposing noncompete agreements, which typically prohibit people from starting a company that rivals their original company. It will also render existing noncompetes unenforceable, with the exception of noncompetes already in place for senior executives. To determine whether an employee qualifies as a senior executive, the rule uses a two-part test that weighs compensation level and job duties.

According to the FTC, about 30 million American workers—roughly one out of every five—are subject to noncompetes. The more likely a court will find a noncompete lawful and enforceable, the shorter the period of a post-employment ban and the narrower the scope of businesses deemed off-limits.
Noncompetes for employers make sure a skilled worker stays employed and is not immediately barred from joining a rival. Noncompetes fall under a group of restrictive covenants intended to stop the loss of talent and intelligence, including for analytics and related data. In order to protect their interests, many businesses also use non-solicitation and non-recruitment clauses and turn to trade secrets and duty of loyalty laws.
Higher-ranking employees in some industries, especially those in the tech and financial services sectors, are prone to noncompetes. They work in the sports betting industry. DraftKings and Fanatics recently faced legal action for an executive who left the betting business for a sportswear manufacturer. Noncompetes are also reflected in endorsement agreements that limit the opportunities for athletes to work with other brands. Noncompetes are sometimes included in coaches ‘ contracts that prevent them from joining rival schools, such as when Bobby Petrino was denied the opportunity to transfer from one SEC school to another.
Noncompetes are also a key component of professional sports league management. Golfers who signed up for LIV Golf were required to agree to the PGA Tour’s terms before they could be suspended. Similar things have happened when professional tennis and professional rodeo leagues have forbid athletes from joining rival teams. Should a coach object to the NFL’s ability to impose restrictions on coaches from interviewing with other teams during the postseason, they might also face scrutiny.
The FTC contends that noncompetes unreasonably limit employees ‘ ability to switch jobs and frequently result in lower wages and a weakening of the free market. The underlying theory is that a worker’s employer might not be as interested in negotiating a higher salary when a worker is unable to use a job offer from a rival to negotiate a higher salary. Noncompetes are alleged to be an unfair form of competition and a violation of the FTC Act by the organization.

Many states already restrict and, in some cases, ban noncompetes. California not only outlaws noncompetes, but also expands the prohibition to remote workers who reside in other states and work for their employers if they are based there. Other restrictions apply to employees who make less than$ 100, 000 annually, work in the healthcare field, or have a non-year-long non-compete.
The FTC proposed the ban last year, with the agency’s chair, Lina Khan, its primary advocate. There are opponents to a ban, especially as evidenced by the five-member board voting 3- 2 on the final rule. A ban prevents an employer and an employee from negotiating a contractual term that, while limiting the employee’s right to change, might be exchanged for higher pay or better pay from the employee.
Melissa Holyoak and Andrew Ferguson, the agency’s two Republican commissioners, said federal government structure prohibits the agency from enforcing limits it says are anticompetitive. ” We are not a legislature”, Ferguson said at the meeting, according to Reuters. I do n’t think we have the authority to cancel tens of millions of contracts already in place.
The proposed ban was opposed by then-FTC commissioner Christine Wilson last year, claiming that it “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.” Wilson urged the organization to lack authority under the FTC Act and warned of unintended consequences. She resigned from the commission at the end of March, 2023.
Expect to see attempts by businesses and other parties to challenge the rule as unlawful under the FTC Act’s language and contrary to Congress’s wishes. One possible argument is that the ban violates Article I, Section 8 of the U. S. Constitution. The Commerce Clause is contained in this section of the Constitution, which gives Congress the authority to regulate interstate commerce, but it may be seen as an attempt to overregulate local or intrastate commerce. A legal challenge might also be brought because it would alter existing arrangements without the parties ‘ consent, leading to the ban raising due process issues. Restraining orders and injunctions could be sought by plaintiffs to halt the implementation of the ban.