In January, the Federal Trade Commission (FTC) proposed a new rule that would ban employers from imposing noncompete clauses on their workers (employees, contractors, interns etc.) and require employers to rescind existing noncompete clauses and inform workers that they are no longer in effect. The FTC described the practice as an “often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses.” The FTC estimates that the ban could “increase wages by nearly $300 billion per year” and expand career opportunities for American workers.
The rule would permit noncompete clauses for shareholders holding at least 25 percent equity in a company. It also would not displace trade secret protections.
FTC Chair Lina M. Khan stressed that “noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition.
The FTC combined its Notice of Proposed Rulemaking (NPRM) with (i) the announcement of consent decrees from enforcement actions treating onerous noncompete clauses as an unfair method of competition under Section 5 of the FTC Act; and (ii) a February public forum on the issue. FTC Chair Khan said that the rule would apply to noncompete clauses and those having the same effect such as training repayment requirements that require a worker to pay a sum to reimburse the employer for training if they leave within a set timeframe.
Proponents cite the example of California where noncompete clauses are difficult to enforce which advocates argue has fueled its robust startup environment.
Opponents of the proposed rule argue that it is (i) too broad in its reach (some believe it should only apply prospectively and not retroactively); (ii) exceeds the FTC’s authority; and/or (iii) is unnecessary.
The FTC is expected to vote on a final rule in April 2024.
See:
FTC Press Release (Jan 5. 2023).
Worker Noncompete Ban Proposal Promises FTC Authority Fight, Bloomberg Law (Jan. 5, 2023).
FTC Public Forum for the Proposed Rule on Noncompetes (Feb. 16, 2023).
FTC Hosts Public Forum on Proposed Rule Banning Non-Compete Clauses, Trade Secret Insider (Mar. 14, 2023).
FTC Forum Shows the Oppression of Noncompete Agreements: From the top to the bottom of the wage scale, these contract clauses are abusive and predatory, The American Prospect (Feb. 16, 2023).
Big businesses rally to preserve their right to limit ex-workers’ job options, NBC News (Apr. 11, 2023).
Beyond noncompetes, firms use these tactics to stop workers from leaving, Washington Post (Apr. 13, 2023).
Coalition comments signed by more than 280 organizations representing 45 states on the FTC’s proposed rule to ban noncompete clauses , U.S. Chamber of Commerce (Apr. 17, 2023).
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