FTC Proposes Rule Banning Non-Compete Agreements

The Federal Trade Commission issued a proposed rule that would prohibit all non-compete agreements between an employer and employee. The proposed rule provides no exceptions except in cases between a buyer and seller of a business.  

The rule defines a “non-compete agreement” as a “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.” All such agreements would be prohibited under the proposed rule. The FTC specifically solicited input on whether it should, in the final rule, include exceptions for executive-level employees.

Other important factors of the rule include:  

• Independent contractors are included in the coverage of the rule, as are any unpaid interns or volunteers; the rule defines covered “workers” very broadly.
  
  
• Per the rule, other contractual restrictions such as non-disclosure agreements (NDAs) could be functionally considered “de-facto non-compete clauses” if they are “written so broadly that [they] effectively preclude the worker from working in the same field after the conclusion of the worker’s employment with the employer.” Certain NDAs and other provisions, therefore, could potentially be prohibited under the proposed rule as well.
  
  
• The rule would rescind all existing non-compete agreements in addition to prohibiting any such future agreements. 

HR Policy  previously weighed in with the FTC on non-compete agreements. In discussions taking place over the last two years with the Commission, the Association’s Center On Executive Compensation urged the FTC to avoid instituting a blanket ban on non-compete agreements, highlighting their appropriateness and importance for senior-level employees and others who may have critical proprietary information. 

Outlook: The Association will be submitting comments on the proposed rule. The Association will urge the FTC to consider carving out senior executive employees and others, among other recommendations.