FTC proposes rule that would ban noncompete clauses

The Federal Trade Commission is proposing a new rule that would prevent employers from imposing noncompete clauses for workers that prohibit them from joining a competitor, typically for a period of time, after they leave the company.

The proposed rule released Thursday follows an executive order signed by President Joe Biden in 2021 targeting what he labeled anticompetitive practices in tech, health care and other parts of the economy. The order included a call for banning or limiting noncompete agreements to help boost wages.

The FTC proposal is based on a preliminary finding that noncompete clauses quash competition in violation of Section 5 of the Federal Trade Commission Act. Section 5 bans unfair methods of competition.

“Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand,” Chair Lina M. Khan said in a prepared statement.

The proposed 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.

It would apply to independent contractors and anyone who works for an company, whether paid or unpaid. It would also require employers to rescind existing noncompete clauses and actively inform workers that they are no longer in effect.

The proposed rule would generally not apply to other types of employment restrictions, like non-disclosure agreements, but other types of employment restrictions could be subject to the rule if they are so broad that they function as noncompete clauses.

The agency estimates that the new proposed rule could boost wages by nearly $300 billion a year and expand career opportunities for about 30 million Americans.

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5 thoughts on “FTC proposes rule that would ban noncompete clauses

  1. Why would any company waste their time and money training someone who could walk across the street the minute training is over? If people don’t like the non-compete they can choose not to take the job in the first place.
    This is what we get when Washington is run by people who have never worked outside of government; also known as never worked an honest day in their life.

    1. How can a new federal law be enacted by Presidential dictat? Once upon a time the Constitution said federal laws had to be made by Congress; our elected representatives were expected to discuss and maybe agree upon a new law.

    2. Treat people correctly so they don’t want to walk across the street. It works both ways.

  2. As someone who has been on both sides of non compete agreements, this is welcome news. At one time, Indiana was very strict before it would enforce a non compete agreement,not amending them if they were not correctly drafted. Now, the courts have added what they call a blue pencil rule, allowing a judge to edit an unenforceable agreement to make it enforceable. Also, once upon a time, non competes were only enforced against top sales people, who had strong relations with customers and were well paid. A few years ago, our Cort of appeals enforced a non compete against a woman earning minimum wage. A outrageous result. Greed by employers killed the non competes. Good riddance to them. Good for employees, who will get treated better.

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