In early January, the Federal Trade Commission (FTC) declared that non-compete clauses – a section of an employment contract that prevents the employee from working for a competitor or launching a competing business for a certain time after the employee resigns or is terminated – stymie competition, hinder job switching, restrict wages and stifle innovation. As a result, the FTC found that non-compete clauses violate Section 5 of the Federal Trade Commission Act.
For these reasons, the FTC proposed a new rule that would ban employers from using non-compete clauses. More specifically, the proposed rule will stop U.S. employers from requiring employees entering in to non-compete agreements with employers, maintaining existing non-compete agreements or making an employee believe the employee is subject to a non-compete clause.
In a press release the FTC said that banning non-compete clauses, which impact nearly every industry, “…could increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans,” which the agency estimates is how many U.S. workers are currently bound by a non-compete agreement.
According to the FTC, the proposed rule does not apply to other employment restrictions, such as non-disclosure or non-solicitation agreements, provided those restrictions are not so broad in scope that they function like a non-compete. It also does not apply to a seller who signs a non-compete agreement with a buyer of the company.
While employers do not need to take immediate action, they should be familiar with the proposal as it is far reaching. The proposed rule would apply to independent contractors and any employee, paid or unpaid (i.e., interns or volunteers), and could potentially go into effect later this year. In its current form, the proposed rule would also require employers to void current non-compete clauses and make employees aware that they are no longer enforceable.
The FTC seeks public comments on the proposed rule, which are due by March 10, 2023. The FTC will take comments into consideration before publishing a final rule. While a new rule will likely be faced with legal challenges, it is slated to go into effect 180 days after the final version is published.
For more information or questions about the FTC’s newly proposed rule, contact one of Buckley Fine’s attorneys at 847-381-0011 or email us at attorneys@buckleyfinelaw.com.