January 05, 2023
FTC Proposes to Effectively Ban Non-Competes: New and Existing
On January 5th, the Federal Trade Commission announced its proposed rule that would ban new, as well as existing, non-compete agreements.
Why? “The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said Chair Lina M. Khan. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand.”
Specifically, the FTC’s new rule would make it illegal for an employer to:
- enter into or attempt to enter into a noncompete with a worker;
- maintain a noncompete with a worker; or
- represent to a worker, under certain circumstances, that the worker is subject to a noncompete.
The proposed rule would apply to independent contractors and anyone who works for an employer, whether paid or unpaid. It would also require employers to rescind existing noncompetes and actively inform workers that they are no longer in effect.
The proposed rule would generally not apply to other types of employment restrictions, like non-disclosure agreements. However, other types of employment restrictions could be subject to the rule if they are so broad in scope that they function as noncompetes.
I have reservations as to whether the FTC has the authority to implement and enforce this rule, particularly as applied retroactively to existing agreements. I anticipate some legal challenges on constitutional and/or other grounds. Other grounds might include where an employer has paid or provided some consideration in exchange for a worker signing a noncompete. Stay tuned.
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