The Federal Trade Commission (FTC) has proposed a rule that would prevent employers from imposing noncompete agreements on their workers.
The proposed rule is based on a finding that noncompete agreements suppress wages, hamper innovation, and block entrepreneurs from starting new businesses. Therefore, they constitute an unfair method of competition in violation of Section 5 of the Federal Trade Commission Act. The proposed rule is in response to a 2021 Presidential Executive Order (E.O. 14036 of Jul 9, 2021) a copy of which can be found here: https://www.federalregister.gov/documents/2021/07/14/2021-15069/promoting-competition-in-the-american-economy.
The FTC’s proposed rule would generally prohibit employers from using noncompete agreements and 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 rule applies to independent contractors and anyone who works for an employer, whether paid or unpaid. Employers would also be required to rescind existing noncompete agreements and actively inform workers that they are no longer in effect.
The proposed rule would generally not apply to other types of employment restrictions, such as non-disclosure agreements. However, other employment restrictions could be subject to the rule if they are so broad in scope that they function as noncompete agreements.
The public may submit comments to the FTC through March 6, 2023.
A copy of the Notice of Proposed Rulemaking can be found here: https://spelusolawoffice.com/wp-content/uploads/2023/01/FTC-2023-0007-0001_content.pdf.
The FTC’s fact sheet can be found here: https://spelusolawoffice.com/wp-content/uploads/2023/01/noncompete_nprm_fact_sheet.pdf.