On January 5, 2023, the Federal Trade Commission (FTC) issued a Notice of Proposed Rulemaking (NPRM) to prohibit employers from entering non-compete clauses with workers.[1] The proposed rule would extend to all workers, whether paid or unpaid, and would require companies to rescind existing non-compete agreements within 180 days of publication of the final rule.[2] The FTC will soon publish the NPRM in the Federal Register, triggering a 60-day public comment period.[3] The rule could be finalized by the end of the year; court challenges to the final rule are likely to follow.

The rule proposal follows recent FTC settlements with three companies and two individuals for allegedly illegal non-compete agreements imposed on workers – the first time the FTC has claimed that non-compete agreements constitute unfair methods of competition under Section 5 of the FTC Act.[4]

The Proposed Rule Would Broadly Ban Non-Compete Agreements

The proposed rule provides:

(a) Unfair methods of competition. It is an unfair method of competition for an employer to enter into or attempt to enter into a non-compete clause with a worker; maintain with a worker a non-compete clause; or represent to a worker that the worker is subject to a non-compete clause where the employer has no good faith basis to believe that the worker is subject to an enforceable non-compete clause.[5]

The proposed rule broadly defines non-compete agreements as: “a contractual term between an employer and a worker that...

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