Federal Trade Commission building in Washington, D.C, on January 12, 2022. Photo: Diego M. Radzinschi/ALM The Wide-Ranging Impacts of the FTC's Proposed Non-Compete Clause Rule
The Proposed Non-Compete Clause Rule would prevent employers from entering into non-compete clauses in employment contracts and would require employers to inform current and former employees that existing non-competes are invalid. It is difficult to overestimate the effect this rule would have on thousands, if not millions, of non-compete agreements in employment contracts today.
February 10, 2023 at 10:00 AM
10 minute read
Federal Government
On Jan. 5, 2023, in a 3-1 vote, the Federal Trade Commission (FTC or Commission) issued a sweeping notice of proposed rulemaking to ban non-compete clauses in employment contracts (the Proposed Non-Compete Clause Rule). Following on the FTC's announced expansive approach to Section 5 of the FTC Act (see Statement of Enforcement Policy Regarding Unfair Methods of Competition Under Section 5 of the FTC Act (Nov. 10, 2022)), the proposed rule "would provide that it is an unfair method of competition—and therefore a violation of Section 5—for an employer to enter into a non-compete clause with a worker …." (Non-Compete Clause Rule, 88 Fed. Reg. 3482, 3541 (Jan. 19, 2023) (to be codified at 16 C.F.R. 910)). According to the Commission, non-compete clauses are "exploitive and coercive at the time of contracting"; they prevent workers from leaving jobs, decrease competition for workers, lower wages, and discourage new business and innovation (id.).
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