On Thursday, the Federal Trade Commission announced a proposal to ban noncompete agreements, which generally prohibit employees from joining a competitor for a period after they stop working for the employer. The proposed rule is based on a preliminary finding that noncompete clauses constitute an unfair method of competition and therefore violate Section 5 of the Federal Trade Commission Act. The Commission’s Chair noted that noncompete provisions “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.”
To address these issues, the FTC’s proposed rule would make it illegal for an employer to: (1) enter into or attempt to enter into a noncompete with a worker; (2) maintain a noncompete with a worker; or (3) represent to a worker, under certain circumstances, that the worker is subject to a noncompete. The rule would apply to independent contractors and anyone who works for an employer, and it would require employers to rescind existing noncompete agreements and actively inform workers that they are no longer in effect.
The FTC’s proposed rule aligns with the Commission’s recent statement to reinvigorate Section 5 of the FTC Act, which bans unfair methods of competition. Indeed, the FTC recently used its Section 5 to bring complaints against companies from imposing onerous noncompete clauses on their workers:
- In one complaint, the FTC took action against a Michigan-based security guard company and its key executives for using coercive noncompete restrictions on low-wage employees;
- The FTC also ordered two of the largest U.S. glass container manufacturers—an Ohio-based company and a Luxembourg-based company with U.S. subsidiaries in Indiana—to stop imposing noncompete restrictions on their workers.
The Commission voted 3-1 to publish the Notice of Proposed Rulemaking, the first step in the FTC’s rulemaking process, which is available here: https://www.ftc.gov/legal-library/browse/federal-register-notices/non-compete-clause-rulemaking
