Federal Trade Commission Issues Proposed Rule Banning Non-Compete Agreements
On January 5, 2023, the Federal Trade Commission issued a proposed rule that would ban employers from implementing and enforcing non-compete agreements. The proposed rule would have broad implications by barring all employers from entering into non-compete agreements with workers, maintaining a non-compete with a worker, or representing to a worker that the worker is subject to a non-compete. The rule would require employers to rescind all existing non-compete agreements and to provide notice to all workers subject to a non-compete agreement that such agreement is no longer in effect. The rule applies to all workers, including independent contractors and unpaid workers. The proposed rule does have a limited exception for non-compete clauses between a buyer and seller of a business.
The proposed rule defines a “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. The rule would not bar the execution or enforcement of other types of restrictive covenants such as non-disclosures, confidentiality agreements, or non-solicitation agreements, but it does leave the door open for such agreements to fall under the auspices of the rule where they are so unusually broad in scope that they effectively prevent a worker from seeking or accepting new employment.
Publication of the proposed rule is just the first step in the Federal Trade Commission rule-making process, and the FTC is now seeking comment on the proposed rule. If passed, the proposed rule would establish an effective date of 60 days, and a compliance date of 180 days, after publication of the final rule in the Federal Register. The rule would also likely face a number of legal challenges.
A copy of the proposed rule can be found here: