FTC Seeks to Prohibit Non-Compete Clauses in Both Future and Existing Employment Agreements

FTC Seeks to Prohibit Non-Compete Clauses in Both Future and Existing Employment Agreements

On January 5, 2023, the Federal Trade Commission (FTC) proposed a rule to prohibit employers from entering into non-compete clauses with any worker (whether paid or unpaid). The proposed rule defines non-compete agreements broadly 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.”  Examples of two “non-competes” that the FTC argues would be impermissible under this broad definition would include:  (1) a non-disclosure agreement between an employer and a worker that is written so broadly that it necessarily precludes the worker from working in the same field after the conclusion of the worker’s employment with the employer; and (2) clauses requiring the worker to pay the employer or a third party for unreasonable training costs if the employment terminates within a specified period. The FTC’s proposed rule also would require employers to rescind existing non-competes within 180 days of publication of the final rule. The FTC published the notice of proposed rulemaking in the Federal Register on January 8, 2023, triggering a 60-day public comment period that will end on March 20, 2023. The rule could thereafter be finalized by the end of the year. The full text of the proposed rule can be found here. Pending the issuance of final guidance, employers should conduct an inventory of current employee agreements so they are ready to review the applicability of the final guidance.