On January 9, 2023, the Federal Trade Commission (“FTC”) opened for public comments a proposed rule that would prohibit non-compete agreements between employers and workers.

What is a non-compete agreement?

Generally, a non-compete agreement is an agreement between employers and workers that prohibits the worker from working in a competitive business following the termination of the employment relationship. Non-compete agreements limit free competition between employers, as well as suppress wages and limit worker mobility.  Imagine if you were fired from your job and had to move to another state for several years just to continue working in your field.

The FTC’s proposed rule defines a “non-compete 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 proposed rule would use a “functional test” to determine if a contract includes a non-compete clause. In other words, a contract that does not contain the phrase “non-compete” could nevertheless be prohibited by this rule if it has the effect of prohibiting the worker from seeking or accepting employment after the current employment relationship ends.

What would the FTC’s rule do?

If adopted, the proposed rule would prohibit employers from entering into, or attempting to enter into, a non-compete clause with a worker. The proposed rule would also prohibit employers from maintaining current non-compete agreements. In other words, any existing non-compete agreements must be rescinded by the compliance date, 180 days after the final rule is published in the Federal Register, an official list of rules proposed or adopted by federal agencies.

What is the status of the rule?

            The proposed rule is in a notice and comment period until March 10, 2023. During this time, members of the public are encouraged to comment about their support or opposition to the proposed rule. After the notice and comment period ends, the FTC will decide whether or not to adopt the proposed rule. If the FTC adopts the rule, employers will be prohibited from entering into or attempting to enter into non-compete agreements, and all existing non-compete agreements must be rescinded by 180 days after the final rule is published in the Federal Register. If you want to read the proposed rule or publish a comment on whether you support or oppose the rule, visit this website: https://www.regulations.gov/document/FTC-2023-0007-0001.
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