On Jan. 5, 2023, the Federal Trade Commission issued a Notice of Proposed Rulemaking essentially banning non-compete clauses and categorizing them as unfair methods of competition. Such clauses serve to protect a business's trade secrets, confidential information and customer relationships, which makes the adoption of such a rule concerning for employers. The comment period for this proposed rule has been extended to April 19, so businesses still have time to voice their concerns directly to the FTC. This article summarizes some of the ways that the proposed rule, if enacted, could affect Texas businesses.

Ability to Contract and Negotiate

The proposed rule would take away the ability of employees and employers to bargain for restrictive covenants. Currently, only California, North Dakota, Oklahoma and Washington, DC, ban such agreements, although nine other states prohibit them for individuals who do not meet a certain wage threshold. Both employers and employees currently benefit from such bargaining, as employers are able to insulate themselves from the actions of former employees for whom they have, in turn, provided consideration in the form of continued employment, access to confidential and proprietary information, goodwill and specialized training. The proposed rule would strip away this right from both sides.