Montgomery McCracken’s Labor and Employment attorneys routinely counsel companies on non-compete clauses and other restrictive covenants and are available to discuss how the FTC’s proposed rule may affect employment agreements if implemented.
FTC Proposes Total Nationwide Ban on Non-Compete Clauses
January 6, 2023
Types : Alerts
This week, the U.S. Federal Trade Commission (FTC) kicked off 2023 with a proposed rule that could potentially spur a revolution in employment law. If implemented, this sweeping regulation would ban all employers from entering into or enforcing non-compete clauses in employment contracts across the nation. While some states already ban non-competes, including California, North Dakota and Oklahoma, they are otherwise very common, with as many as 30 million Americans currently subject to some sort of non-compete restrictions. Employers across the country frequently rely on non-compete clauses to prevent employees from working for competitors or starting their own competing business within certain geographic areas and time periods.
The language of the rule is broad, and defines “worker” as “a person who works, whether paid or unpaid, for an employer,” and specifically includes independent contractors and “sole proprietor[s] who provide a service to a client or customer.” The ban does contain an exemption for companies seeking to prevent an owner or partner selling a business from immediately re-entering the field. It also would not prohibit other post-employment restrictions, such as reasonably tailored non-disclosure agreements.
The FTC is accepting public comment on the proposal for 60 days before it issues a final version of the rule. Employers facing issues with non-compete agreements should be aware that there is now a possibility of a forthcoming federal ban on these agreements that would not only prevent employers from entering into future agreements, but also require them to nullify existing non-compete agreements.