FTC Proposes Rule to Prohibit Noncompete Clauses

On January 5, 2023, the FTC proposed a new rule that would ban employers from including noncompete clauses on their workers contracts. According to the FTC, a noncompete requirement is a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses. The agency estimates that the new proposed rule could increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans.

The FTC is seeking public comment on the proposed rule, which is based on a preliminary determination that noncompete agreements constitute an unfair method of competition, thus violating Section 5 of the Federal Trade Commission Act. In addition, research also found that noncompete clauses also hinder innovation and business dynamism, such as preventing would-be entrepreneurs from forming competing businesses and inhibiting workers from bringing innovative ideas to new companies.

The FTC’s proposed rule would generally prohibit employers from using noncompete clauses. In particular, the FTC’s new rule would make it illegal for an employer to:

  • enter into or attempt to enter into a noncompete with a worker;

  • maintain a noncompete with a worker; or

  • represent to a worker, under certain circumstances, that the worker is subject to a noncompete.

Read FTC’s full press release here.

The proposed rule can be found here.

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