On January 5, 2023, the Federal Trade Commission issued a proposed new rule to ban the use of non-compete agreements by employers. This sweeping proposed rule would categorize such agreements as an unfair method of competition and would preempt state law in this area. As drafted, the proposed rule would prohibit traditional non-compete clauses as well as other agreements that have the effect of limiting an individual’s employment opportunities, such as overly broad non-disclosure agreements and training cost reimbursement agreements. Notably, the proposed rule would apply to agreements with both employees and independent contractors and would also require the affirmative rescission of existing non-compete clauses. The proposed rule does provide a limited exception for non-compete clauses obtained in the sale-of-business context.

This proposed rulemaking is an anticipated outgrowth of President Biden’s July 9, 2021, Executive Order on Promoting Competition in the American Economy. Nevertheless, there are significant questions about the FTC’s statutory authority to regulate non-compete clauses nationwide. That issue will likely get sorted out by the courts in challenges to any final rule. When the proposed rule is published in the Federal Register, the public will have 60 days to submit comments on the FTC’s proposal.

For questions related to this or any other Labor & Employment matters, contact Scopelitis Partners Greg Feary, David Robinson, Jack Finklea, and Prasad Sharma.