FTC proposes rule banning all employment noncompete agreements

On January 5, the Federal Trade Commission (FTC) issued a proposed rule that could change the employment terms of approximately 30 million American workers. To learn more about this game-changing proposal and how it may affect your business, read on.

The proposed rule
The proposed rule would: (1) ban all noncompete agreements for employees and independent contractors; (2) rescind all employment noncompete agreements currently in place; and (3) require employers to affirmatively inform employees or independent contractors currently under an employment noncompete agreement that it’s rescinded.

According to the FTC, by restricting workers’ abilities to change jobs or start new businesses, noncompete clauses have the effect of decreasing competition, lowering wages, and stifling innovation.

The proposed rule defines what a noncompete agreement is, stating that it only applies to agreements that prevent workers from “accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer.”

The rule also states that a contractual term that “has the effect” of prohibiting an employee from working in the same field or operating a business is a de facto noncompete. In other words, the proposed rule, on its face, doesn’t ban nonsolicitation of customers, but there could be some circumstances where a nonsolicitation or nondisclosure agreement is so broad that it has the effect of prohibiting a worker from going to a competitor or starting a business.