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By Sanjeev Kumar
Founding Attorney

Have you heard that the FTC has proposed a ban on non-competes? It’s true! The Federal Trade Commission (FT) proposed a new rule in January of this year that would ban employers from imposing non-competes on their workers. Employers throughout the U.S. should be aware of these proposed rules and their status as they work their way through the comment period, which is open through March 20, 2023.

FTC’s Proposed Ban on Non-Competes

The rule proposed by the FTC would put a general ban on employers using non-compete clause. More specifically, the rule would make it illegal for an employer to either enter into or attempt to enter into a non-compete with a worker. It would also make it illegal for an employer to maintain a non-compete agreement with a worker or to represent to a worker that they were subject to a non-compete agreement.

As proposed, the rule would apply to independent contractors as well as anyone working for the employer, whether they were paid or unpaid. Employers would be required to rescind any existing non-competes as well as uphold a duty to actively inform workers that non-compete agreements in existence were no longer in effect. It should also be noted that the FTC’s proposed rule would not generally impact other types of employment restrictions, such as non-disclosure agreements. The rule could, however, come into play if other types of employment restrictions were broad enough in scope to effectively function just like a non-compete agreement.

Why is the FTC proposing this new rule banning non-competes? Well, several reasons have been asserted. The FTC believes that, for too long, employers have exploited their upper hand in bargains with workers in order to have them enter into non-competes. Furthermore, the FTC has made it clear that they believe non-competes are preventing healthy competition within U.S. labor markets because workers are being prevented from pursuing better opportunities. Conversely, employers are unable to hire the best available workers because they are tied down to non-competes with other employers.

The FTC estimates that a ban on non-competes could increase wages by almost $300 billion per year in the U.S. Furthermore, the FTC asserts that such a ban could end up expanding career opportunities for approximately 30 million Americans. FTC Chair Lina M. Khan has been cited as saying that the “freedom to change jobs is core to economic liberty and to a competitive, thriving economy.” Khan goes on to say that “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.”

The FTC proposed rule on non-competes is the result of all of this. It is an attempt to clear what they see as a hinderance on innovation and business growth in the U.S. They also assert that consumers are ultimately victims of the disadvantages of non-competes as well. They trace non-competes to higher prices in certain industries, such as the health care sector.

Business Law Attorney

Employers and entrepreneurs, be aware of what is going on regarding non-competes and the potential ban on them in the near future. For any question, reach out to the business law team at The Kumar Law Firm. Contact us today.

About the Author
Sanjeev Kumar is the founder and principal at the Kumar Law Firm, which provides a wide range of legal services to entrepreneurs and business owners in the area of business & corporate law and intellectual property along with related areas of interest to clients such as business succession planning, wealth preservation through estate planning, and alternate dispute resolution.