FTC Proposes New Rule That Would Ban Non-Compete Agreements

The Federal Trade Commission recently announced its proposal for a new rule that would ban employers from obtaining non-compete agreements from their employees, something the commission referred to as “a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses.” According to the announcement, prohibiting these agreements would expand employment opportunities by approximately 30 million people and increase salaries by almost $300 billion annually.

What Is a Non-Compete Agreement?

Non-compete agreements – either via a separate contract or a clause in an employee contract – are legal agreements that prevent employees from entering into competition with the employer once their period of employment has ceased. These agreements also bar employees from revealing any of the company’s proprietary information either during or after their employment. Companies typically also have both consultants and independent contractors sign the agreements.

The agreement will also specify the length of time the employee, consultant, or contractor is prevented from working for a competitor of the current employer after their employment ends.

Proposed Rule

According to the FTC’s announcment, not only would the new rule prevent companies from enforcing new non-compete agreements, it would also require companies to rescind any existing non-competes and to actively inform those employees, et al that the agreements are no longer in effect.

Some of the factors cited for the FTC’s proposal include:

• Non-compete agreements significantly reduce employees’ wages since the employer has all the power and controls the wages. The employee is unable to look for better employment because of the agreement.
• Non-compete agreements can be used to exploit workers, limiting their ability to negotiate better working conditions, wages, or benefits.
• Non-compete agreements are not necessary to protect proprietary information since employers have other means available to ensure those protections. The FTC points to the success of companies in protecting this information in several states that refuse to honor non-compete agreements, including Oklahoma, North Dakota, and California.

The FTC is seeking public comment regarding the proposed change, including:

• Should low- and high-wage employees be treated differently?
• Should senior executives be exempted from the rule?
• Should franchisees be covered under the rule?

The deadline for sending public comments is March 20, 2023.

Contact a Fort Lauderdale Employment Law Attorney

If you have questions about non-compete agreements and how this proposed rule could affect your company – or any other employment law issue – call The Elliot Legal Group, P.A. at 754-332-2101 to schedule a confidential consultation with one of our skilled Fort Lauderdale, FL employment lawyers.

Sources:

https://www.federalregister.gov/documents/2023/01/19/2023-00414/non-compete-clause-rule

https://www.ftc.gov/news-events/news/press-releases/2023/01/ftc-proposes-rule-ban-noncompete-clauses-which-hurt-workers-harm-competition

https://www.investopedia.com/terms/n/noncompete-agreement.asp