Federal Trade Commission Proposes Ban on Non-Compete Clauses in an Effort to Protect Employees

On January 5, 2023, the Federal Trade Commission— an independent government agency tasked with enforcing civil antitrust laws and promoting consumer protection— proposed a rule to ban non-compete clauses in the United States. The FTC proposed the ban in an effort to protect employees from agreements that place unfair limitations on members of the workforce and stifle entrepreneurship and competition. According to the FTC, approximately one in five workers is currently subject to a non-compete.

Non-compete clauses are contractual agreements that limit or prohibit workers from seeking or accepting particular employment, or operating a business, once they leave their current employer. Usually, non-compete clauses have temporal and geographical restrictions and are used by employers to protect proprietary information, reduce labor turnover and to discourage direct competition from former employees. Nevertheless, these clauses can not only inhibit workers from freely leaving their employment, but can result in restraints on pay, entrepreneurship and professional development. Noncompete clauses are generally regulated on a state-by-state basis where some states, including California, North Dakota and Oklahoma, wholly prohibit the enforcement of non-compete clauses. 

This proposed rule, if enforced, may propel employers to seek alternative methods to achieve the same results as a non-compete clause. Non-disclosure agreements, non-solicitation agreements and enforcing trade-secret laws may be useful tools, but likely won’t have as protective an effect for employer’s as non-compete clauses do.  

The proposed rule is open for public comment for a period of 60 days. Once changes are considered following the public comment period, should  a final rule be issued the FTC should certainly expect legal pushback from businesses and employers. 

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