On Thursday, January 5, 2023, the Federal Trade Commission (FTC) proposed a rule that would bar all U.S. employers from enforcing and imposing non-compete agreements on workers. The proposed rule – if ever finalized – would have significant legal and business ramifications on the U.S. labor economy.
It is important to note at the outset the process here by which this proposed rule could be finalized. First, there will be a sixty (60) day public comment period, which the FTC indicates will open soon. Then, the FTC will review and may make changes in a final rule. It is anticipated that a final rule will be issued based upon the current makeup of the FTC.
Business advocacy groups – most notably the U.S. Chamber of Commerce – have already signaled an intent to challenge any final rule via litigation. Any such litigation is likely to seek an injunction to prevent the ruling from going into effect until a final decision in the lawsuit is reached. Thus, a final rule being implemented in the near future is not a certainty.
The proposed rule itself is broad in its application. The definition of employer and worker under the rule is intended to cover nearly every person in the workforce, with very few exceptions. The proposed rule would prevent the use of non-competes for new hires and require employers to take active steps to rescind existing non-competes.
For now, employers should watch this developing story closely. We will work to keep you as up-to-date as possible. For future hires, employers should start considering what impact, if any, a ban on non-competes would have on the hiring of certain workers. For instance, does it open the possibility of hiring workers from competitors once thought to be off-limits? Does this require a closer look at compensation for new hires? For existing non-competes, no action should be taken yet, but you may need to start thinking about the likelihood of any exodus of current workers if the new rule is finalized.