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FTC Seeks to Ban Non-Compete Restrictions in Employment Contracts


Key Takeaways

  • The FTC has proposed a new rule under Section 5 of the Federal Trade Commission Act that would significantly ban non-compete agreements between employers and workers.
  • If adopted, the Proposed Rule would supersede “inconsistent” state laws and also require employers to rescind certain existing non-compete clauses no later than 180 days after publication of the adopted rule.
  • The FTC also recently filed enforcement actions against three companies and multiple executives for imposing non-compete restrictions on workers, and obtained consent orders.

On Jan. 5, the Federal Trade Commission voted 3-1 to propose a new rule under Section 5 of the Federal Trade Commission Act that would largely ban non-compete agreements between employers and employees. If passed, the Proposed Rule would become a federal regulation making it an “unfair method of competition” for an employer “to enter into or attempt to enter into,” “maintain” or “represent to a worker that the worker is subject to a non-compete clause.” A preamble to the Notice of Proposed Rulemaking cites the harm that non-competes purportedly inflict on (i) workers whose compensation and mobility are stymied by non-competes and (ii) new business enterprises that find it difficult to break into an industry where skilled labor is locked into existing employment arrangements.

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