Six months into his presidency, Joe Biden signed an executive order that encouraged the Chair of the Federal Trade Commission (FTC) “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”  A year and a half later, the agency has now proposed a rule that would ban employers from imposing these restrictive covenants on their workers.

For advocates of fair employment practices and employees who’ve been subjected to noncompete clauses, the FTC’s move is a hopeful sign. Noncompete agreements have always been controversial, but recently some have become so restrictive and unreasonable as to have kept people from leaving dead-end jobs, from improving their earning ability, or from starting new businesses. The FTC’s announcement of its Notice of Proposed Rulemaking specifically references these abuses, with Chair Lina M. Khan saying, “The freedom to change jobs is core to economic liberty and to a competitive, thriving economy. Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition.”

Noncompete agreements can be standalone contracts or clauses within employment agreements. They bar employees, contractors, and consultants from competing with the employer, whether by going to work for a competitor or by starting their own business in the same industry after their employment ceases. While they are purportedly intended to protect the interests of the employer, their terms are frequently unreasonable and punitive, imposing extremely long periods of time or broad geographic or industry limitations on where and when former employees can work. If the ban is put in place, employers would not only be prohibited from using noncompete clauses going forard, but would also be required to actively inform workers that any noncompete agreement that they previously signed is no longer in effect.

The FTC’s announcement represents an invitation for comments on the proposed rule once it is published. If adopted, the FTC’s proposal would apply to employees and independent contractors. It 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 contract

The proposal would not restrict the use of non-disclosure agreements, which prevent the employee from revealing proprietary or confidential information — those would remain legal and enforceable.

We will carefully monitor this development while continuing to work on behalf of employees who’ve been subjected to unfair or unreasonable restrictions. If you believe that you’ve been treated unfairly or subjected to employment discrimination, contact us today for information on how we can be of assistance.

The Proposed Rule and Fact Sheet can be Found Here