Are Non-Competition Agreements Going to Become a Thing of the Past?

On January 5, 2023, the Federal Trade Commission released a Notice of Proposed Rulemaking to prohibit employers from imposing noncompete clauses on workers.

Here's a sample of part of the proposed Rule:

§ 910.2 Unfair methods of competition.

(a) Unfair methods of competition. It is an unfair method of competition for an employer to enter into or attempt to enter into a non-compete clause with a worker; maintain with a worker a non-compete clause; or represent to a worker that the worker is subject to a non-compete clause where the employer has no good faith basis to believe that the worker is subject to an enforceable non-compete clause.

(b) Existing non-compete clauses.

(1) Rescission requirement. To comply with paragraph (a) of this section, which states that it is an unfair method of competition for an employer to maintain with a worker a non-compete clause, an employer that entered into a non-compete clause with a worker prior to the compliance date must rescind the non-compete clause no later than the compliance date.

The fact sheet from the FTC points out that:

1. Noncompete clauses significantly reduce workers' wages.

2. Noncompete clauses stifle new businesses and new ideas.

3. Noncompete clauses can exploit workers and hinder economic liberty.

4. Employers often justify using noncompetes with their workers to protect confidential information and to get the most out of their investments in training and capital. But Employers have other ways to protect trade secrets and other valuable investments that are significantly less harmful to workers and consumers.

The FTC has invited comment on the proposed rule and estimates that the rule would:

Increase workers' earnings by nearly $300 billion per year.

Save consumers up to $148 billion annually on health care costs

Double the number of companies founded by a former worker in the same industry.

The FTC seeks public comment on a number of topics, in particular

Whether franchisees should be covered by the rule.

Whether senior executives should be exempted from the rule, or subject to a rebuttable presumption rather than a ban.

Whether low- and high-wage workers should be treated differently under the rule.