Proposed Federal Trade Commission Non-Compete Ban

FTC Proposed Ban

Our firm frequently receives requests from individuals in varied fields to review non-compete agreements their employers have presented them.  We have previous blog posts about the enforceability of general non-compete agreements and the specific requirements for physician non-compete agreements. Soon, however, non-competes may become a thing of the past. On January 5 of this year, the Federal Trade Commission released a proposal that seeks to ban future non-compete agreements and invalidate any currently existing.

The FTC justified their proposal by stating that about “one in five American workers—approximately 30 million people—are bound by a non-compete clause and are thus restricted from pursuing better employment opportunities.” The Commission further estimates that banning non-compete agreements “would increase American workers’ earnings between $250 billion and $296 billion per year.” Accordingly, the FTC proposes that the following are unfair methods of competition and should be banned:

  1. An employer entering into or attempting to enter into a non-compete clause with a worker;
  2. An employer maintaining a worker with a non-compete clause;
  3. An employer representing to a worker that the worker is subject to a non-compete clause where the employer has no good faith basis to believe that the worker is subject to an enforceable non-compete clause.

The proposed ban is extensive. It would not only ban explicit non-compete clauses, but also “de facto” non-compete clauses that have the practical effect of prohibiting workers from seeking other employment or operating a business in direct competition to a previous employer. Employers would be required to rescind any non-compete clauses currently in existence, and would not be allowed to rescind any provision negotiated in exchange for the non-compete. For example—if an employer agrees to pay an employee a retention bonus for three years in exchange for signing a non-compete agreement, the employer would have to rescind the non-compete agreement but could not also renege on paying the retention bonus.

The proposed rule still has a long way to go before it becomes federal law. The FTC is currently accepting public comments on the proposed rule, and will make changes in a final rule based on the comments and further internal analysis. The comment period is open through March 10, 2023. Should the proposal become law, legal challenges from employers who utilize non-compete clauses is certain. Practically, the common worker should not expect any changes in the near future. If you have been presented with a non-compete agreement by your employer, we recommend contacting an experienced attorney to help you understand your options moving forward.

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