By: Michael Heller
The Federal Trade Commission (“FTC”) published a new proposed rule on January 19, 2023 to prohibit the use of non-compete clauses in certain agreements. The proposal is currently in the commentary period, which will end on March 20, 2023. If adopted, the proposed rule will require employers that use non-compete clauses to remove them from their agreements. In addition to removing the non-compete clauses, employers will be required to provide individualized communications to current and former employees who have been/are affected by the non-compete clause to notify them that the clause has been removed and will no longer be enforceable. The proposed rule applies to a wide classification range including, but not limited to, employees, independent contractors, interns, and volunteers. Certain employer classifications are excluded from coverage of the proposed rule; most notably federally chartered credit unions.
The proposed changes do not extend to other restrictive covenants like non-solicitation or non-disclosure obligations since those provisions should protect legitimate business interests and do not necessarily prevent an employee from seeking or accepting employment with another business. However, the proposed rule is clear that if these types of covenants are so unusually broad to effectively function as non-compete clauses, they will be considered to be non-compete clauses and will be prohibited. This determination is made on a case-by-case basis considering factors outlined in the proposed rule.
If you have any questions about the proposed FTC rule change or if you would like us to review any agreements that you think may be affected by this proposed rule change, please contact us.