FTC Proposes Federal Rule to Ban Noncompetes with Employees

9 January 2023
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Key takeaways:

On January 5, 2023, the Federal Trade Commission (“FTC”) proposed a new rule, which, if finalized, would ban post-employment noncompete agreements. The proposed rule would:

  • ban employers from entering into, attempting to enter into or maintaining a post-employment noncompete with any paid or unpaid worker, including employees, independent contractors and sole proprietors who provide services to a client or customer;
  • require employers to rescind existing noncompetes and provide individualized notice of this rescission to current and former workers; and
  • impact the enforceability of seller noncompetes, prohibiting post-employment noncompetes with seller-employees who owned less than 25% of the business entity at the time they entered into the noncompete.

The scope of any final rulemaking could differ from the proposed rule in small or large ways. The FTC is seeking comment during a 60-day public comment period on all aspects of its proposal, including alternatives to its proposed categorical ban on noncompetes and whether it should exempt seller noncompetes from its rulemaking.