FTC Announces Proposed Rule Banning Noncompete Agreements
On Jan. 5, 2023, the Federal Trade Commission (FTC) announced a proposed rule that would prohibit employers from imposing or enforcing noncompete clauses on workers. The proposed rule will have a public comment window of 60 days after the rule is published in the Federal Register (the rule has not been published in the Federal Register yet).
Rationale for the Proposed Rule
The FTC’s proposed rule is based on President Joe Biden’s 2021 Executive Order on Promoting Competition in the American Economy, which encouraged the FTC to exercise its statutory rule-making authority under the Federal Trade Commission Act to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”
Overview of the Proposed Rule
If adopted, the proposed rule would:
Ban employers from entering into noncompete clauses with workers and independent contractors;
Require employers to rescind existing noncompete clauses with employees; and
Require employers to actively inform their employees that their noncompete agreements are no longer in effect.
Impact on Employers
At this stage, the proposed rule does not create any new obligations for employers. However, employers that use noncompete agreements should become familiar with the proposal. Interested employers should submit any comments to the FTC within the 60-day window the agency will allow for feedback.
Important Dates
Jan. 5, 2023
The FTC announced a proposed rule that would ban noncompete agreements.
March 2023
The deadline for submitting public comment on the proposed rule is 60 days after publication in the Federal Register. Assuming the proposal is published in January, all comments will need to be received before the month of March is over.
This Legal Update is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. ©2023 Zywave, Inc. All rights reserved.