In July of 2021, President Biden directed the Federal Trade Commission (FTC) to “curtail the unfair use of non-competes.” Many observers thought this would result in a rule that severely restricted the use of employee non-competes. However, on January 5, 2023, the FTC surprised everyone and issued a proposed rule that works towards a non-compete ban.
The FTC offered several justifications in support of this ban, the most significant being the claim that it will facilitate worker mobility, thereby increasing American wages by $300 billion/year.
Basics of the proposed rule
This proposed rule throws over a hundred years of non-compete law out the window and supports a nearly categorical ban. It’s hard to overstate what a radical departure this is from existing law. On their own, states have been increasingly active in limiting non-compete use over the last several years, but this proposal goes much further than most states have been willing to explore.
This new rule is remarkably broad in its application and scope. It would apply to all workers equally. Tim Cook, the CEO of Apple, and sandwich makers at Jimmy Johns are identical under this rule. Not only would this rule ban non-compete agreements specifically, it also purports to ban other types of restrictive covenants, like confidentiality provisions, that are written broadly enough that they function as de facto non-competes. In other words, any agreement that has the effect of prohibiting an employee from working with another business when their employment ends would also be banned.
Further, this new rule applies both prospectively and retroactively, meaning that no violative agreements either currently in existence or contemplated for the future would be enforceable. Under this rule, employers who already executed non-competes with their employees would be required to provide notice to them that their non-compete is no longer in effect—even those former employees whose agreements are still active.
For more detailed information, check out SixFifty’s on-demand webinar discussing FTC non-compete restrictions.
For now, this is just a proposed rule and still needs to go through a notice and comment period before it can become final. The notice and comment period began when the proposed rule was published in the Federal Register on January 19, 2023, and will remain open for 60 days. That means anyone who would like to submit a comment has until March 20, 2023 to do so. For anyone interested, the proposed rule and instructions regarding how to submit an official comment can be found here.
It’s unclear how long after the notice and comment period expires the FTC will publish a final rule. The FTC will need to consider all the comments and decide whether to implement the proposed rule as it is or to change it to cater to public comment. Not only that, it’s likely there will be lengthy legal challenges to the rule. In fact, Indiana Congresswoman Victoria Spartz has already sent a letter to the FTC noting constitutional concerns.
Generate compliant employment agreements with SixFifty
SixFifty’s Employment Agreements toolkit includes non-compete agreements that comply with every state and federal law. Our easy-to-use software platform helps you generate the necessary documents to manage and hire employees in every jurisdiction across the country. Legal experts at SixFifty are monitoring the current situation and will update our tools to reflect any change in the law so your employment agreements are always up to date.
For more information, or to see our document generators in action, request a demo today.