Photo: Meeboonstudio via Adobe Stock FTC Authority to Ban Noncompete Clauses in Employment Agreements?
The scope of the proposed rule is quite broad: the agency estimates that 49.4% of American firms use such clauses purporting to bind nearly 30 million workers in this country. Currently, noncompete contracts are governed by state law: three states (California, North Dakota and Oklahoma, as well as the District of Columbia) outright ban their enforcement, aside from a few narrow exceptions.
March 21, 2023 at 11:15 AM
7 minute read
Analysis
On Jan. 5, 2023, the Federal Trade Commission (FTC) published a notice of proposed rulemaking (NPRM, as published on the agency's website, Jan. 6, 2023), or proposed rule) that would make it an "unfair method of competition for an employer to enter into or attempt to enter into a noncompete clause with a worker; maintain with a worker a noncompete clause; or represent to a worker that the worker is subject to a noncompete clause where the employer has no good faith basis to believe the worker is subject to an enforceable noncompete clause." (NPRM, at 69). A noncompete clause is defined by the proposed rule as "a contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker's employment with the employer." "Senior executives," a term not yet defined, may or may not be excluded from the reach of the proposal (depending on the agency's views after receiving comments).
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