FTC Announces Vote to Publish Proposed Rules that Would Ban All Noncompete Provisions Restricting Workers

January 6, 2023

The Federal Trade Commission (FTC) started the new year off with a bang when it announced in a press release on January 5, 2023 that it is proposing a new rule that would ban many employee non-compete clauses.

The press release follows a 3-1 vote by the FTC to publish a notice of proposed rulemaking in the Federal Register.  This indicates the first step toward adopting regulations but does not mean the regulations are final or binding at this time.  Once published in the Federal Register, the public is given a 60-day period to submit comments about the proposed regulations.  The usual process is for the federal agency to consider the comments, potentially make revisions to the proposed regulations, and adopt final regulations with comments.  The final regulations would then be published in the Federal Register.

The press release describes a broad and sweeping national ban on the use of noncompete clauses making it illegal for employers to use this relatively common restriction on employees.  Noncompete clauses generally restrict an employee from competing with the business of the employer once they have left their employ.  The extent of enforceability has historically been a function of state law with every state having different laws, policy, and court precedence governing the extent to which noncompete clauses are enforceable.  According to the press release, the FTC is proposing a national ban regarding noncompete clauses on workers.

The FTC’s new rule would make it illegal for an employer to enter into noncompete agreements or clauses with workers.  It would also extend to existing noncompete restrictions by prohibiting employers from maintaining these restrictions.  The ban would extend to independent contractors and anyone else who works for an employer.  Employers also would be required to rescind existing noncompete restrictions.

The proposed rule would generally not apply to other types of employment restrictions, such as non-disclosure agreements.  However, other types of employment restrictions could be subject to the rule if they are so broad in scope they function as noncompete restrictions.

The devil may be in the details with respect to the exact scope of the restriction.  Ruder Ware will be monitoring developments in this area closely and will issue new alerts once the published proposed rule becomes available.

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