US FTC proposes ban on non-compete clauses

On January 5, 2023, the Federal Trade Commission (FTC) proposed a rule that would ban non-compete clauses for employees. The announcement of the proposed rule comes a day after the FTC, in a divided vote, took action against three companies and two individuals to force them to drop non-compete restrictions that impacted thousands of workers across the three companies.

The proposed rule is broad. It would both (i) ban new non-compete agreements with employees (including independent contractors) and (ii) require employers to rescind existing non-compete clauses in contracts and make employees aware that those provisions of their contracts no longer are in effect. The proposed rule would supersede any other state statute, rule or regulation to the extent the two are inconsistent, while preserving any greater protections afforded workers under state law.

The FTC also proposes to ban “functional” non-compete clauses, which may not be styled as non-compete clauses, but which may have “the effect of prohibiting the worker from seeking or accepting employment… after the conclusion of the worker's employment with the employer," such as overbroad non-disclosure agreements or terms that require the worker to repay incurred training costs.

The rule contains only limited exceptions. The only identified exceptions relate to sellers of businesses or assets when the restricted person is a substantial owner, member or partner in the business at the time of the non-compete. The proposed rule notably does not provide an exception for the protection of trade secrets and other confidential information, with the FTC arguing that data from states where employers cannot enforce non-competes shows that "employers have other ways of protecting these investments."

These actions are consistent with a number of other enforcement actions, policy pronouncements and litigation filings from both the FTC and the Department of Justice's (DOJ) Antitrust Division, which have signaled unmistakably the agencies' commitment to antitrust enforcement in labor markets in the Biden administration.

The proposed rule is subject to public notice and comment. Interested parties seeking to submit comments may do so within 60 days of the rule's publication. Norton Rose Fulbright's antitrust team regularly assists clients in FTC rulemaking processes and advises clients on antitrust policies and enforcement actions as they relate to workers and employees.