FTC Proposed Rule on Noncompete Clauses
The Vision Council’s Government and Regulatory Affairs team would like to call members’ attention to a proposed rule introduced by the Federal Trade Commission (FTC) outlawing noncompetition clauses in employment agreements in the U.S., with certain exceptions.
A noncompete clause is a contractual term between an employer and a worker that blocks the worker from working for a competing employer or starting a competing business, typically within a certain geographic area and period of time after the worker’s employment ends.
The proposed rule would apply to independent contractors and anyone who works for an employer, whether paid or unpaid. It would generally not apply to other types of employment restrictions, like nondisclosure agreements.
In summary, the FTC believes that after preliminary findings, a noncompete constitutes an unfair method of competition and therefore violates Section 5 of the Federal Trade Commission Act. The new 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.
- Represent to a worker, under certain circumstances that the worker is subject to a noncompete.
The Federal Trade Commission will review the comments and may make changes in a final rule, based on the comments and on the FTC’s further analysis of this issue. The comment period is open through March 20, 2023.
During this period, anyone who has an interest in this topic may submit a comment.
At the end of the public comment period, the FTC will review the comments and will either:
- Not make any changes to the proposed rule and issue it as a “Final Ruling.”
- Make changes to the rule and seek further comment.
- Withdraw the rule and go no further.
When the Final Ruling is completed, it will go to Congress under the provisions of the Congressional Review Act, 5 USC 801, for review. The final rule will be issued unless, within 60 legislative days, a joint resolution of Congress is passed disapproving the rule. If no action is taken under the Congressional Review Act, the bill will be published in the Federal Register and take effect 180 days after date of publication of the final rule.
This process could take anywhere from one to three years before compliance is required.
In the meantime, noncompetes will be subject to the antitrust rules that require that the noncompetes be reasonable and not create an anticompetitive disadvantage for employees.
If you have any questions or would like to speak to a member of the Government and Regulatory Affairs team, please contact Omar Elkhatib, The Vision Council’s Sr. Manager, Government Relations, at email@example.com.