On Tuesday, the Federal Trade Commission (FTC) voted 3-2 to prohibit noncompete agreements that restrict tens of millions of workers from joining competitors or initiating their own ventures after leaving a job. Under the final rules, new noncompete agreements will be prohibited for all employees, and companies must inform current and former staff that these agreements will not be enforced. Existing noncompete agreements for most employees will be nullified, with the exception of senior executives, who may still be subject to such agreements, marking a departure from the initial proposal.
If the non-compete ban survives legal challenges that are already being pursued, it will take effect 120 days after publication of the final rule in the Federal Register. Read on to find out how the ban will affect the telecom industry.
Impact of the Non-Compete Ban on the Telecom Industry
The FTC’s final rule implementing the non-compete ban cites Section 5 of the Federal Trade Commission Act, which broadly targets unfair competition practices. However, it’s crucial to note that Title II common carriers are explicitly excluded from this FTC jurisdiction. This exemption applies to incumbent local exchange carriers (ILECs), competitive local exchange carriers (CLECs), interexchange carriers (IXCs), and wireless carriers. On the other hand, companies including interconnected Voice over Internet Protocol (I-VoIP) providers, telecom equipment manufacturers, and Software-as-a-Service (SaaS) companies are required to comply with this ban.
The evolving regulatory landscape places interconnected VoIP providers at a relative disadvantage compared to traditional telecom services, which enjoy the protective framework of Title II regulations without facing the same stringent FTC oversight. While the FCC has progressively applied various Title II regulations to interconnected VoIP services, these providers are still vulnerable to state consumer protection laws and other state regulations due to their non-exclusive jurisdiction under the FCC. This dual exposure significantly influences their operational and compliance strategies.
The FTC’s imposition of a comprehensive non-compete ban adds another layer of complexity, particularly affecting interconnected VoIP providers’ competitive positioning within the industry. This situation underscores the need for a nuanced understanding of both federal and state regulatory environments to navigate these challenges effectively. It is less clear whether the non-compete ban will apply to broadband Internet access service (BIAS) providers. Historically, the FTC has taken the position that it has legal authority to step in when BIAS providers engage in unfair or deceptive practices. However, this could change with the imminent reclassification of broadband as a telecommunications service. Nonetheless, because the FCC intends to forbear from extending some Title II regulations to BIAS providers, it is unclear how much jurisdiction, if any, the FTC will retain over these providers.
Scope of the Non-Compete Ban
The ban applies to all noncompete agreements falling under the FTC’s jurisdiction, except those involving “senior executives” as defined by the FTC — individuals earning over $151,163 annually in policy-making roles — whose existing agreements will remain valid. The protection extends not only to employees but also to contractors.
Opposition to the Non-Compete Ban
There is extensive opposition to the non-compete ban — not just among businesses, but also within the FTC itself. The U.S. Chamber of Commerce, a prominent advocate for businesses, and several other business groups have already sued the FTC, seeking to prevent the rule from going into effect. Suzanne Clark, President and CEO of the Chamber, characterized the FTC’s decision as a “blatant power grab” that could jeopardize the competitiveness of American businesses. Additionally, while dissenting FTC commissioners acknowledged concerns with noncompete agreements, they contested the FTC’s authority to enact the rule without a specific directive from Congress.
The CommLaw Group Can Help!
Determining if your business is covered by the non-compete ban can be particularly challenging if your company offers a combination of exempt Title II telecommunications services alongside non-exempt VoIP or other communications services: especially, if the same contractors or employees have responsibilities relating to both regulated and unregulated services. Our firm stands by ready to help you navigate these complexities. If you have questions or concerns about how the non-compete ban may affect your business or what your company must do to comply, please contact Jonathan Marashlian at (703) 714-1313 or jsm@commlawgroup.com.
