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:

  1. enter into or attempt to enter into a noncompete with a worker;
  2. maintain a noncompete with a worker; or
  3. 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 It would also require employers to rescind existing noncompetes and actively inform workers that they are no longer in effect.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 or no-solicitation agreements except where such agreements, “where they are so unusually broad in scope that they…prevent a worker from seeking or accepting employment with a person or operating a business after the conclusion of the worker’s employment with the employer…”

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.

In the interim, click here to read the 216-page rule, of which 210 pages are preamble. Click here to submit your comments by April 19, 2023 (extended from the original deadline of March 20th).

FREE WEBCAST. For more information, including an advocacy checklist, click here for the agenda and to register for a FREE webcast, February 15th from Noon – 1:15 p.m. ET.  Pre-approved by SHRM for 1.25 credits and pre-approved by HRCI for 1.25 business credits.