FTC Proposes Rule to Ban Noncompete Clauses

Workforce; Regulations

In January 2023, the Federal Trade Commission (FTC) released a proposed rule to ban noncompete clauses. According to the FTC, about one in five American workers—approximately 30 million people—are bound by a non-compete clause, which is a contractual term between an employer and a worker that blocks the worker from working for a competing employer or starting a competing business, typically within a certain geographic area and period of time after the worker’s employment ends. President Biden also noted this proposal during his recent State of the Union address, and his support for banning noncompete agreements.   
More specifically, the FTC’s proposed rule would generally prohibit employers from using noncompete clauses. It would make it illegal for an employer to: 
  • Enter into or attempt to enter into a noncompete with a worker; 
  • Maintain a noncompete with a worker; or 
  • 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 It would also require employers to rescind existing noncompetes and actively inform workers that they are no longer in effect.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. However, other types of employment restrictions could be subject to the rule if they are so broad in scope that they function as noncompetes. The comment period is open through Mar 10, 2023, and you can find more information here for submitting comments.