Federal Trade Commission Moves to Eliminate Non-Compete Agreements Nationwide

Jan 6, 2023

On January 5, 2023, the Federal Trade Commission unveiled a proposed rule that would invalidate most non-compete agreements nationwide and prevent employers from entering new ones with workers. The proposed rule faces a lengthy rulemaking process before taking effect, and if enacted, would likely face immediate legal challenges in court. The proposed rule follows a nationwide trend of increased hostility toward non-compete agreements and comes nearly a year and a half after President Biden issued an Executive Order calling on the FTC to take action curtailing non-compete agreements.

The proposed rule applies only to agreements containing a non-compete clause. A non-compete clause is a contractual term between an employer and worker that restricts the worker from accepting employment with a competitor of the employer typically for a set amount of time and within a defined geographic area. Under the proposed rule, the term “non-compete clause” includes any contractual term that has the effect of prohibiting a worker from seeking or accepting employment with another entity. The proposed rule does not apply to post-employment restrictions on solicitation of the employer’s customers (non-solicitation clauses) or to tailored restrictions against the disclosure of confidential information (non-disclosure clauses).

The proposed rule would, with few exceptions, stop employers from entering or attempting to enter a non-compete agreement with a worker. Notably, the rule would also require employers to rescind non-compete agreements currently in effect with workers and notify current workers that they were no longer bound by the non-compete restrictions.

Federal law does not currently regulate non-compete agreements. This gap has led to states crafting a patchwork of laws permitting, limiting, or banning such agreements. At present, nearly a dozen states prohibit non-compete agreements for some or all employees, while many others impose various restrictions on the length or scope of the agreements. The proposed rule would create a new national standard that supersedes any contrary state law.

Notwithstanding the FTC’s announcement, there is no immediate action that employers should take. The rulemaking process is expected to last at least several months. Even if passed as written, the proposed rule would not require compliance for at least 180 days after the final language is published.

K|W|W attorneys will continue to track these developments. At K|W|W, your workforce is our priority.