The Federal Trade Commission (“FTC”) is proposing a new rule that would prevent employers from imposing or enforcing any noncompete clauses on workers. A noncompete clause prevents a worker from seeking employment or operating a business after the worker’s employment is concluded. According to FTC Chair, Lina Khan, noncompete clauses, “can block workers from securing higher wages and prevent businesses from being able to compete.”

 

The proposed new rule is very broad. It would affect employees and independent contractors, regardless of whether they are in paid or unpaid positions. Employers would be required to rescind the noncompete provisions in existing agreements and notify workers that the clause may not be enforced against the worker in an individual communication within 45 days of rescission. If adopted, employers would have 180 days to comply.

 

The proposed new rule would not apply to noncompete clauses entered into in connection with significant ownership sales in an entity. The proposed new rule also specifically excludes a franchisor-franchisee relationship, but does include any person who works for a franchisee or franchisor. There are no other exceptions in this proposed rule.

 

As currently proposed, the new rule would not apply to confidentiality or non-solicitation provisions in employment or any other agreements. Those provisions would still be subject to federal antitrust laws and state laws.

 

Public comment may be made directly to the FTC before March 10, 2023 at: https://www.regulations.gov/docket/FTC-2023-0007/document

 

The entire text of the rule and other information can be found at: https://www.ftc.gov/legal-library/browse/federal-register-notices/non-compete-clause-rulemaking

 

Please reach out if you have any questions.

 

Christina M. Noyes | p: 602.257.7488 | e: cmnoyes@gustlaw.com

 

Susan Plimpton Segal | p: 602.257.7425 | e: spsegal@gustlaw.com

 

James W. Kaucher | p: 520.388.4792 | e: jkaucher@gustlaw.com