Federal Trade Commission Issues Proposed Rule to Ban Non-Competes
On January 5, the FTC issued a proposed rule which would prohibit employers from entering into non-compete agreements with employees. The rule would also require employers to rescind all existing non-compete agreements and to provide notice to the employee that the non-compete clause is no longer in effect.
Take note that it appears the FTC would broadly construe the rule, as it also prohibits “de facto” non-compete clauses, giving the example of training agreements that require an employee to remain employed for a specified period or repay the cost of the training.
The FTC is taking the position that employers use of non-competes is a form of unfair competition, because they prevent employees from leaving jobs and decrease competition in the workforce.
At this point, the rule is only proposed, and the public has 180 days to comment. There should be plenty of public comments on this from businesses. Litigation is sure to follow if the FTC issues a final rule. It is quite unclear as to whether the FTC has the legal authority to issue such a rule.