Proposed FTC rule would ban employers from imposing noncompetes

The Federal Trade Commission has proposed a new rule that would ban employers from imposing noncompetes on their workers with the hope of increasing wages and expanding career opportunities, the agency announced Jan. 5 in a news release.

Companies use noncompete contracts for workers across industries and job levels and sometimes “use their outsized bargaining power to coerce workers” into signing these contracts, according to the commission. Stopping the practice could potentially increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans, FTC said.

“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said Lina M. Khan, FTC chair. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition.”

The FTC said the proposed rule would apply to independent contractors and anyone who works for an employer, whether paid or unpaid. It would also generally prohibit employers from using noncompete clauses and make it illegal for employers to:

• Enter into or attempt to enter into a noncompete with a worker.
• Maintain a noncompete or represent to a worker that they are subject to a noncompete under certain circumstances.

The proposed rule would also require employers to rescind existing noncompetes and actively inform workers that they are no longer in effect.

The FTC added that the proposed rule would “generally not apply to other types of employment restrictions, like non-disclosure agreements” but said “other types of employment restrictions could be subject to the rule if they are so broad in scope that they function as noncompetes.”

For more information, visit FTC.gov.

The ADA publication A Dentist’s Guide to the Law discusses non-compete agreements, which are also known as restrictive covenants. To purchase, visit the ADA Store.