Cutting through the Noise: What Your Business Needs to Know About the FTC's Proposed Rule to Ban Non-Compete Agreements
Kicking the New Year off with an unpopular bang, the Federal Trade Commission (“FTC”) announced a Proposed Rule in January 2023 that would broadly ban non-compete agreements between employers and their workers. (The proposed rule is available at: https://www.ftc.gov/legal-library/browse/federal-register-notices/non-compete-clause-rulemaking (issued Jan 5, 2023) (the “Proposed Rule”).
What is the Proposed Rule?
The Proposed Rule is a broad ban against using “non-compete clauses” in the employment context. The rule defines a “non-compete clause” as “a contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer.”
Unlike the shifting tide on non-compete laws across the country, the Proposed Rule makes no exception for high-level employees or employees with direct access to trade secrets. Rather, the proposed non-compete ban only contains an exception that allows for non-competes to prevent employees from departing to a competitor after sale of their employer’s business.
Is the FTC’s Ban Already in Effect?
No. Like all rules issued through regulatory agencies, the FTC’s proposed rule will go through a notice-and-comment period, which is a 60-day period by default. The comment period regarding the Proposed Rule is open through March 20, 2023, which allows stakeholders and members of the public to submit comments on the Proposed Rule. At some unknown point after the comment period closes, the FTC will likely issue a final version of the rule, which may differ from the current language of the Proposed Rule.
Further, any final rule issued to ban non-competes will face legal challenges and will likely be stayed by a court order while those challenges are reviewed.
