FTC Proposes Sweeping Ban on Non-Competes

In an announcement yesterday, the FTC proposed that it will adopt a new rule broadly banning noncompete clauses. The FTC Commissioners voted along party lines to publish the Notice of Proposed Rulemaking, with Commissioner Christine S. Wilson, the lone Republican Commissioner, issuing a scathing dissenting statement opposing the rule. This news comes on the heels of the FTC announcing that it challenged and settled three lawsuits earlier this week alleging that three employers’ non-compete agreements violated the FTC Act.

In a nutshell, the proposed rule would prevent employers from entering into non-compete clauses (or de-facto non-compete clauses) with workers. Workers are broadly defined to include both employees and independent contractors. The proposed rule would also require employers to rescind existing non-compete clauses and to provide notice of recission to its current and former workers.

As with any proposed rule, the public has an opportunity to submit comments for consideration before the FTC publishes its final rule on banning non-competes. There is a 60-day deadline to submit comments. In addition to the proposed rule itself, the FTC is seeking comments on proposed alternatives that include differentiating between employees who make above or below a certain threshold (i.e., executives vs. staff) and differentiating between types of workers (i.e., contract employees vs. independent contractors). It is also common for industry-specific comments to be submitted. Once a final rule has been published, the Notice states that employers would have to comply with the rule within 180 days.

If the rule is adopted, we can expect with great certainty that the validity and enforceability of the rule will be challenged in court. The U.S. Chamber of Commerce, for example, has already issued a statement calling the FTC’s proposed actions blatantly unlawful. Commissioner Wilson’s dissenting statement similarly outlines the vulnerabilities with the proposed rule and previews challenges based on the FTC’s lack of Congressional authorization to undertake this initiative. Her statement also encourages comments that discuss industry-specific information and data that might contradict that which the FTC Notice relies on in proposing the rule.

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