FTC Proposed Rule to Ban Employment-Based Noncompetes: Key Workplace Implications

Description

Under the proposed rule, the FTC defines a noncompete clause 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." The FTC argues that noncompetes constitute an unfair method of competition and therefore violate Section 5 of the FTCA. Proponents of noncompetes argue that they are necessary to protect legitimate business interests from unfair competition.

Currently, the FTC has filed only a Notice of Proposed Rulemaking and is seeking public comment on the proposed rule as to whether franchisees should be covered, the treatment of senior executives, the differences between low-income and high-wage workers, and other issues. The FTC estimates that this proposed ban on noncompetes could increase employee wages by nearly $300 billion per year and expand better career opportunities for approximately 30 million Americans.

Most importantly, if finalized, the proposed rule will require employers nationwide to rescind existing post-employment noncompetes and provide notice to current and former employees. The proposed rule defines "worker" broadly as employees, independent contractors, interns, and volunteers. Under the proposed rule, noncompetes can include broadly written nondisclosure agreements, training repayment agreements, and other restrictive clauses that protect against unfair competition. It is important to note the FTC does not have jurisdiction over banks, credit unions, nonprofits, or savings and loans institutions. The proposed rule includes an exception for noncompetes entered into in the context of a sale of a business since the rule's emphasis is on employment relationships.

Listen as our distinguished panel provides guidance on key workplace implications related to the FTC's proposed sweeping ban on employment-based noncompetes. The panel will offer best practices for reviewing current agreements and employment practices regarding restrictive covenants, trade secrets, and other proprietary business interests.