FTC issues proposal to ban noncompete agreements

On January 5, the Federal Trade Commission (FTC) proposed a new rule that would ban noncompete clauses in the employment context and void those currently in effect. Noncompete agreements restrict an employee’s ability to work in their industry for a certain amount of time in a certain geographic location following the end of employment.

The potential ban won’t go into effect until after the 60-day comment period and 180 days after the FTC issues a final rule, which may look markedly different from the proposed rule. Although employers may still be able to protect their legitimate business interests in other ways, the proposed rule could have a sweeping effect on noncompete agreements in the U.S.

What does the proposed rule say?

The proposed rule would preclude employers from entering into noncompete agreements with employees, trying to do so, or even suggesting that employees are bound by a noncompete when they aren’t. The rule doesn’t just cover employees but also independent contractors, interns, volunteers, and others.

The proposed rule doesn’t explicitly extend to non-solicitation or nondisclosure agreements, but it does say that nondisclosure agreements are “de facto” noncompetes if they would effectively stop an employee from continuing to work in the same field.