What You Need to Know About the FTC’s Proposed Non-Compete Ban

Today, January 5, 2023, the Federal Trade Commission (“FTC”) proposed a new rule that would ban companies from requiring non-compete agreements to be signed by employees and contractors (“Proposed Rule”). The FTC estimates that such a ban would affect 30 million Americans. The FTC’s reasoning behind the Proposed Rule is set forth in its press release and notes that the “freedom to change jobs is core to economic liberty and to a competitive, thriving economy” and “Noncompetes harm competition in U.S. labor markets by blocking workers from pursuing better opportunities and by preventing employers from hiring the best available talent.”

In a nut-shell, the Proposed Rule would prohibit companies from:

1. Entering into or attempting to enter into noncompete agreements with workers;
2. Maintaining a noncompete agreement with a worker; and
3. Representing that a worker is subject to a noncompete obligation.

The restrictions would extend to independent contractors and volunteers; generally, anyone who provides work, whether paid or unpaid. Additionally, it would require current non-compete agreements or provisions to be rescinded within 180- days after the final rule’s publication.

The Proposed Rule would not apply to non-competes entered into when a person is selling a business entity or disposing of ownership in a business entity. The FTC has requested public comment and is specifically interested in public comment on the following topics:

1. Whether franchisees should be covered by the rule?
2. Whether senior executives should be exempted from the rule, or subject to a rebuttable presumption rather than a ban?
3. Whether low- and high-wage workers should be treated differently under the rule?

Employers are reminded, that were the FTC’s rule to take effect, employers (based on state of operation) may still have other restrictive covenants available to protect confidential and sensitive information as well as to protect departing employees from walking out with customers and customer lists—including non-solicitation clauses/agreements and confidentiality clauses/agreements. The Proposed Rule does, however, indicate that if a non-disclosure/confidentiality agreement were so broad that it would effectively preclude individuals from working in the same field, it would be treated as a non-compete agreement.

Individuals and companies can submit comments concerning the proposed rule for 60 days after the Federal Register publishes the Proposed Rule. The Proposed Rule has not yet been published but is available here. For questions as to how this rule may affect your current business operations contact Tawny Alvarez or another member of Verrill’s Employment and Labor department.