FTC Proposal to Ban Non-Competes

January 12, 2023

Just days into the new year, the Federal Trade Commission (FTC) announced a groundbreaking new proposed rule, which if adopted, would ban almost all employer non-compete agreements. This proposed rule would not only ban the enforcement of such agreements, but also would also prohibit their use entirely.

The FTC has invited the public to submit comments on the proposed rule. Once the public comment period has ended, the FTC will consider finalizing this proposed rule. If finalized in its current form, the rule would apply to nearly all non-compete agreements, including those between an employer and all employees, independent contractors, externs, interns, volunteers, apprentices, or sole proprietors who provide service to a client or customer.

The proposed rule defines “non-compete clause” as meaning any “contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer.” Effectively, this would include any clause or contractual language that would impede an employee’s ability to work in the same field after the employment relationship has ended.

Further, the proposed rule would require all employers to rescind all existing non-compete agreements. If the rule is finalized, the FTC will set a compliance date for which rescission must be effectuated.

In addition, the proposed rule would require employers to give individual, written notice to each employee that the non-compete is no longer in effect and may not be enforced. The notice must include language that informs the employee: (1) that it is unlawful to maintain the current non-compete agreement, and (2) once their employment relationship ends they will be able to seek or accept work with another employer, including a competitor, and will not be preventing from running their own business that competes with the employer or competing in any other way.

The impact of this proposed law is broad, and would affect nearly all employment relationships. There is a narrow exception only for the franchisee-franchisor relationship, and the proposed rule would not apply to non-compete agreements that are included in the sale of a business entity.


We are monitoring this proposed rule closely. If you have any questions, please reach out to us.

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