Jan. 16, 2023

FTC Seeks Public Comment on Proposed Noncompete Clause Ban

The Federal Trade Commission started 2023 with a proposed new rule that was immediately condemned by business groups. The would prohibit employers from using noncompete clauses.

“Today’s actions by the Federal Trade Commission to outright ban noncompete clauses in all employer contracts is blatantly unlawful,” Sean Heather, senior vice president for international regulatory affairs and antitrust, said in a statement. “Since the agency’s creation over 100 years ago, Congress has never delegated the FTC anything close to the authority it would need to promulgate such a competition rule. The chamber is confident that this unlawful action will not stand. 

“Attempting to ban noncompete clauses in all employment circumstances overturns well-established state laws which have long governed their use and ignores the fact that, when appropriately used, noncompete agreements are an important tool in fostering innovation and preserving competition,” he added.

In the announcement of the proposed rule, agency Chair Lina Khan alleged noncompete clauses, which are commonly used to protect trade secrets and competition, are blocking workers from freely switching jobs, depriving them of higher wages and better working conditions while also depriving businesses of a talent pool they need to expand.

The FTC’s proposed rule would generally prohibit employers from using noncompete clauses by making it illegal for an employer to:

  • Enter into or attempt to enter into a noncompete with a worker
  • Maintain a noncompete with a worker
  • Represent to a worker, under certain circumstances, that the worker is subject to a noncompete

The agency is seeking public comment on the proposed rule following a preliminary finding that noncompete clauses violate Section 5 of the Federal Trade Commission Act. FEDA members are encouraged to share their thoughts on the rule and its potential impact by clicking here.