
The Federal Trade Commission (FTC) recently announced a proposed rule that would ban noncompete clauses in employment agreements. In making its historic announcement, the agency stated that noncompete agreements harm competition; suppress wages for workers, including those not subjected to noncompete clauses; reduce labor mobility; and hamper innovation. According to the FTC, if the proposed rule becomes final, it could increase employee wages by approximately $300 billion per year and expand career opportunities for 30 million American workers.
What Will the Proposed Rule Address?
The agency’s proposed rule is based on a preliminary finding that noncompete clauses constitute unfair competition and, therefore, violate Section 5 of the Federal Trade Commission Act. The proposed rule would generally prevent employers from taking the following actions:
- Entering or attempting to enter into noncompete agreements with employees
- Maintaining noncompete agreements with employees
- Representing to employees, under certain circumstances, that they are subject to noncompete agreements
The FTC’s proposed rule includes a limited exception for noncompete clauses between a seller and buyer of a business. Additionally, nondisclosure and nonsolicitation agreements are excluded from the definition of a noncompete clause. The agency’s proposed rule would apply to both employees and independent contractors. If the rule becomes final, employers would be required to nullify existing noncompete agreements within six months of the final rule’s publication.
What Does This Mean?
Noncompete agreements are used for workers across industries and job levels. They prevent workers from accepting jobs with competing employers or even starting their own businesses. If the FTC’s proposed rule becomes final, employers would no longer be able to require employees to agree to noncompete clauses, and existing noncompete agreements would no longer be considered valid. Banning noncompete agreements could considerably impact employee wages, working conditions and benefits since employees would have the freedom to change jobs, seek higher wages and search for better working conditions and benefits.
Sign up for our newsletter.


