FTC Proposes to Ban Non-Compete Agreements

The US Federal Trade Commission (FTC) has proposed to prohibit employers from entering non-compete clause with workers. The regulation would apply to all workers, paid and unpaid, and would also require companies to rescind existing non-compete agreements within 180 days after the rule is finalized.

Proposed Regulatory Language

The FTC notes that “[i]t is an unfair method of competition for an employer to enter into or attempt to enter into a non-compete clause with a worker; maintain with a worker a non-compete clause; or represent to a worker that the worker is subject to a non-compete clause where the employer has no good faith basis to believe that the worker is subject to an enforceable non-compete clause.‎”

The proposal broadly defines non-compete agreements and identifies two types of agreements that would constitute impermissible “non-competes”:

A non-disclosure agreement between an employer and a worker that is written so broadly that it effectively precludes the worker from working in the same field after the conclusion of the worker’s employment with the employer; and
A contractual term between an employer and a worker that requires the worker to pay the employer or a third-party entity for training costs if the worker’s employment terminates within a specified time period, where the required payment is not reasonably related to the costs the employer incurred for training the worker.

The proposed rule does not expressly prohibit non-disclosure and intellectual property agreements with employees, but those agreements could be impermissible non-competes if they are written so broadly that they effectively preclude the worker from working in the same field.

Strong Industry Opposition to the Proposed Rule

The proposed rule is part of a larger trend toward more expansive federal regulation of employment relations, including actions of the FTC, the National Labor Relations Board and the Department of Labor. The U.S. Chamber of Commerce and allied business groups are opposing the proposal as unlawful, arguing among other things that the FTC lacks authority to issue the rule.

Rulemaking Timetable

The proposed rule is not yet been published in the Federal Register, but a pre-publication copy of the rule is available at: https://www.ftc.gov/system/files/ftc_gov/pdf/p201000noncompetenprm.pdf.

The FTC will provide a 60-day public comment period and expects to finalize the rule by the end of 2023. Aggressive legal challenges to the final regulation are anticipated.

This update is courtesy of the National Association for Surface Finishing (NASF). For more information or to become a member, visit nasf.org.