The Federal Trade Commission (FTC) has issued a Notice of Proposed Rulemaking to broadly ban the use of non-compete covenants throughout the country.

The proposed rule, which would supersede all contrary state laws, is remarkable for its sweeping definition of “non-compete clauses” that fall within the ban. The ban would extend to “de facto” non-compete clauses — i.e., contractual provisions that have the effect of prohibiting workers from seeking or accepting employment or operating a business after the conclusion of the worker’s current employment. In this regard, the ban may implicate broadly drafted non-disclosure of confidential information restrictions and repayment of training costs provisions. The ban could also implicate non-solicitation of customer restrictions, depending on the surrounding facts.

If adopted, the proposed rule will require all employers that use any agreement with a non-compete clause (or with a clause that could be deemed a non-compete clause under the definition in the proposed rule) to take action to rescind the non-compete clause. Any provision negotiated in exchange for the non-compete (for example, a severance provision) would remain intact. This recission action will require individualized communications from the employer to all current employees, as well as former employees.

While the proposed rule contains a sale-of-business exception, even that is exceptionally narrow and limited to individuals who owned at least 25 percent of the...

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