On Jan. 5, 2023, the Federal Trade Commission (FTC) announced a proposed rule that would prohibit employers from imposing or enforcing noncompete clauses on workers. The proposed rule was published in the Federal Register on Jan. 19, 2023. The public may submit comments on this proposal until March 20, 2023.
Rationale for the Proposed Rule
The FTC’s proposed rule is based on President Joe Biden’s 2021Executive Order on Promoting Competition in the American Economy, which encouraged the FTC to exercise its statutory rule-making authority under the Federal Trade Commission Act to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”
Overview of the Proposed Rule
Under the proposed rule, noncompete agreements would be considered an unfair method of competition. If adopted, the proposed rule would:
- Ban employers from entering into noncompete clauses with workers and independent contractors;
- Require employers to rescind existing noncompete clauses with employees; and
- Require employers to actively inform their employees that their non-compete agreements are no longer in effect.
Impact on Employers
At this stage, the proposed rule does not create any new obligations for employers. However, employers that use noncompete agreements should become familiar with the proposal. Interested employers should submit any comments to the FTC within the 60-day window the agency will allow for feedback.
Source: Human Resource Dimension