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Thursday, February 2, 2023

FTC Proposes Ban On Noncompete Agreements

 The Federal Trade Commission is proposing a complete ban on agreements banning former employees and independent contractors from going to work for competitors. Per the FTC:

FTC’s proposed rule would generally prohibit employers from using noncompete clauses. Specifically, the FTC’s 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; or
represent to a worker, under certain circumstances, that the worker is subject to a noncompete.

The proposed rule would apply to independent contractors and anyone who works for an employer, whether paid or unpaid. It would also require employers to rescind existing noncompetes and actively inform workers that they are no longer in effect.

The proposed rule would generally not apply to other types of employment restrictions, like non-disclosure agreements. However, other types of employment restrictions could be subject to the rule if they are so broad in scope that they function as noncompetes.

The FTC said that noncompetes are, "a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses. By stopping this practice, the agency estimates that the new proposed rule could increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans."

Before you get too excited, remember that the rule hasn't been put in place yet, there will be lots of legal challenges, and there is no way Congress will do anything to support the agency. The Supremes have been all about limiting the power of federal agencies, so expect them to block the rule if it goes into place.  Also remember that nonsolicitation agreements will probably still be legal.

Still, once it goes into effect, there will be a brief period where noncompetes will not exist. So people will get jobs, and then they might have to give them up and face lawsuits if the courts reverse the ban. I recommend caution, but also will keep my fingers crossed that these agreements are finally eliminated for good.

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I appreciate your comments and general questions but this isn't the place to ask confidential legal questions. If you need an employee-side employment lawyer, try http://exchange.nela.org/findalawyer to locate one in your state.