Federal Trade Commission proposes banning noncompete clauses

On January 5, 2023, the Federal Trade Commission (FTC) proposed a radical and unprecedented rule that would prohibit employers from using noncompete clauses with their workers. This follows the initiation of a landmark FTC enforcement action aimed at noncompete clauses and a larger crackdown on what the commission perceives as unfair restrictions on competition.

According to the FTC, approximately 30 million American workers are currently bound by noncompete clauses. The agency asserts the clauses harm workers—regardless of whether they’re subject to a noncompete—because the practice allegedly hinders competition, discourages employees from leaving their jobs, and drives down wages.

Restrictions and exceptions

The proposed rule broadly prohibits employers from entering, attempting to enter, or maintaining noncompete clauses with their employees, paid and unpaid workers, interns, externs, independent contractors, volunteers, and apprentices.

For purposes of the rule, the FTC defines noncompete clauses as contractual terms between an employer and employee that prevent the employee from seeking or accepting alternate employment, or running a business, after the termination of their relationship with the employer.

The rule doesn’t seek to ban other restrictive employment covenants such as nondisclosure agreements or non-solicitation agreements. Any agreement that is written broadly enough to effectively prohibit the employee from working in the same field with a different employer would be prohibited, however.