FTC Proposes New Rule to Ban Non-Compete Agreements: What does this mean for employers and employees?

On January 5, 2023, the Federal Trade Commission (“FTC”) issued a Notice of Proposed Rulemaking (the “Notice”) containing a proposed rule (“Rule”) that would restrict employers from entering into and/or enforcing non-compete agreements with their employees and independent contractors.

Non-Compete Agreements are Broadly Defined in the Rule

Under the proposed Rule, a non-compete agreement is defined 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.” Notice § 910.1(b)(1). The proposed Rule would also prohibit any employer from entering into any agreement which has “the effect of prohibiting 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.” Notice § 910.1(b)(2).

If Enacted, the Rule would Require Employers to Rescind Existing Non-Compete Agreements

Additionally, the Rule would require employers to revoke and rescind any existing non-compete agreements within six months of the Rule’s effective date and affirmatively notify both current and former employees that the respective non-compete is no longer valid. Notice § 910.3.

Exceptions

The only exception set forth in the proposed Rule is for non-compete agreements entered in  the sale of businesses. Notice at 129.

How Frier Levitt Can Help – Opportunity for Comment

The Notice will be published by the FTC in the latest edition of the Federal Register. Thereafter, interested parties will have sixty (60) days to submit comments to the FTC on the Rule. Frier Levitt attorneys are examining the proposed Rule and will continue to assess its impact on our clients. Please contact Frier Levitt with any questions regarding the proposed Rule or assistance in submitting comments to the FTC.