By: Annalyse Harris

FTC’s Proposed Rule 

In January 2023, the United States Federal Trade Commission (“FTC”) released a proposed rule that, if enacted into law, would ban companies from the use of non-compete clauses in employment agreements. Additionally, the rule will require companies to fully rescind all non-competes with current and former employees. 

The rule defines “non-compete clause” as a “contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer.” 

Importantly, the rule clarifies that whether or not a contractual term is considered a “non-compete clause” does not depend on its express terms, but rather on how the term functions. Therefore, if a contractual term has the effect of preventing a worker from seeking or accepting employment subsequent to the worker’s employment with the employer, it will be prohibited. Jackson Lewis, one of the nation’s most prominent labor and employment law firms, effectively labels such term as a “de facto” non-compete. 

NFL Franchise Tags 

The National Football League (“NFL”) gives each team the right to “franchise tag” one player a year. This means a team can restrict an otherwise unrestricted free agent–a player with at least four seasons accrued whose contract has expired and is free to negotiate and sign with any team—for a year longer than his contract. 

Teams can choose between a non-exclusive and exclusive franchise tag. The former allows a player to further negotiate with other teams, while the latter does not. Additionally, players generally have little to no control over the tagging, and as a result this is not usually a player-friendly practice, as it blocks players from becoming unrestricted free agents. 

NFL Exclusive Franchise Tags as Non-Competes

An exclusive tag gives the team exclusive negotiating rights. This tag comes with a salary of either 120% of the player’s current year’s salary or an average of the top five salaries of players at his position, whichever is greater. While on its face, this may not seem like a bad deal, it is only a one-year contract and eliminates players’ ability to obtain long-term contracts with any other team. Not only are the players barred from negotiating and signing with other teams, but they do not have the option to refuse the tag. If a player refuses the tag, he is then barred from signing with any other team for the entire season. In short, these tags act as an ultimatum with no security.

It should also be noted that the NFL, the most profitable sports league in the world, is the only league that has such restriction. Further, in industries outside of the scope of sports, such restriction would never be enforceable. Indeed, the exclusive tag has been called the “prison tag” by many players in the league, as they maintain other leagues do not have such tags and the tags unfairly control their free agency, earning potential, and ability to be employed by a team of their own choosing. 

Therefore, because the exclusive tag restricts a player’s actions by banning negotiations and employment with other teams, it has the effect of a non-compete clause and will likely be prohibited by the FTC’s proposed rule. 

While it can be argued that the tags are defined and governed by the NFL Players Association (“NFLPA”) Collective Bargaining Agreement (“CBA”) and are therefore organized labor, which has been exempted as non-statutory labor, the FTC’s rule as written does not include any non-statutory labor exemptions. This being said, if the FTC’s proposed rule becomes law and does not exempt the NFL in said capacity, the NFL’s almost three decades of exclusive franchise tagging will come to an end. 

When Could this Happen?

Because the FTC’s proposal is left open for public comment until at least March 10, 2023, and the window teams can tag players for the upcoming season is from February 21 through March 7, 2023, it is likely there will not be any changes for this year/season. Members of the public have the right to ask the FTC be granted additional time to amend the proposal to add and/or omit comments and changes. After this window is closed, the FTC can change, terminate, or make a final rule that must be published by the Federal Register. Then, upon Congressional approval, the rule will become law at least 60 days after the Federal Register’s publication. Accordingly, it could be months before any movement is made in regard to the FTC’s proposed rule on banning non-competes.