FTC Proposes Rule Banning Noncompete Agreements

On January 5, 2023, the Federal Commerce Fee (FTC) issued a proposed rule that may prohibit employers from utilizing noncompete agreements with their staff or impartial contractors. This proposal arises from a preliminary discovering by the FTC that noncompetes represent an unfair methodology of competitors in violation of Part 5 of the Federal Commerce Fee Act (FTC Act). It comes on the heels of the FTC’s November policy statement asserting its intention to carefully implement and broaden the scope of Part 5 of the FTC Act’s ban on unfair strategies of competitors.

If adopted, this rule would make it unlawful for an employer to enter right into a noncompete settlement with a employee, keep a noncompete with a employee or signify to a employee that the employee is topic to a noncompete. Employers would even be required to rescind present noncompetes and inform employees that they’re now not enforceable.

The proposed rule would apply to noncompetes with both staff or impartial contractors. Different restrictive covenants akin to non-disclosure agreements wouldn’t be affected by the FTC’s proposed rule until they’re so broad in scope that they basically operate as a noncompete settlement.

The FTC is inviting public touch upon its proposed rule. The complete textual content of the proposed rule and data on the general public remark interval is obtainable here. Specifically, the FTC seeks touch upon whether or not senior executives or franchisees must be lined by the rule, in addition to whether or not low- and high-wage employees must be handled otherwise beneath the rule. Feedback are due 60 days after the Federal Register publishes this proposed rule, after which the FTC is more likely to challenge a closing rule. Ought to the rule change into closing, corporations must be ready for it to enter impact 180 days after the date of publication.

The proposed rule arrives with the FTC’s concurrent announcement of settlements in complaints it issued towards three employers’ use of noncompetes. These settlements ban these employers from imposing, threatening to implement or imposing noncompetes towards specified teams of staff and require that the businesses notify all affected staff.

Traditionally, noncompetes had been a matter of state legislation. With this new involvement from the FTC making an attempt to set a nationwide ban on noncompetes, employers want to concentrate on this newest try to manage the usage of noncompete agreements and restrictive covenants.

Whether or not the FTC will succeed stays an open query. Republican Commissioner Christine S. Wilson, in a dissenting statement, cautioned that the proposed rule is open to meritorious challenges that (1) the Fee lacks authority to have interaction in “unfair strategies of competitors” rulemaking and (2) the Supreme Court docket of america’ “main questions” doctrine means that the federal courts could preclude the FTC from venturing into this novel space of regulation absent legislative amendments to its enabling statute. Plus, events could persuade the FTC to reduce its proposed regulation.

Entities taken with submitting such feedback can acquire additional steerage and drafting help from both Paul Hughes, Brian Mead or a member of the Agency’s antitrust group.