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Employment Law Alert – Employers – Don’t Panic Yet But the FTC Proposes Rule to Ban Non-Compete Agreements

January 6, 2023

 

On January 5, 2023, the Federal Trade Commission (“FTC”) proposed a rule to ban non-compete agreements between employers and “workers.”  If the proposed rule is finalized without change, it will also require employers to rescind any existing non-compete agreements with current and former workers.  The proposed rule broadly defines “worker” to include an employee, independent contractor, interns, apprentices, and sole proprietors.  The term worker does not include a franchisee in the context of a franchisee-franchisor relationship but the term does include a person who works for the franchisee or franchisor. 

The proposed rule defines non-compete agreements to include any agreements which have “the effect of prohibiting the worker from seeking or accepting employment with a person or operating a business after the conclusion of the worker’s employment with the employer.”  The proposed rule identifies two types of agreements that are prohibited by the rule:

  • A non-disclosure agreement between an employer and a worker that is written so broadly that it effectively precludes the worker from working in the same field after the conclusion of the worker’s employment with the employer; and
  • A contractual term between an employer and a worker that requires the worker to pay the employer or a third-party entity for training costs if the worker’s employment terminates within a specified time period, where the required payment is not reasonably related to the costs the employer incurred for training the worker.

In addition, the proposed rule is silent on non-solicitation agreements, and it does not prohibit non-disclosure agreements so long as they are not written so broadly that they effectively preclude the worker from working in the same field.  The proposed rule also exempts non-compete agreements entered into in connection with the sale of a business. 

There is still a big “if” as to whether the proposed rule will go into effect.  Comments on the proposed rule are due 60 days after the FTC publishes the proposed rule in the Federal Register.  If the FTC finalizes the rule, it would set a compliance date of 180 days after it publishes the final rule in the Federal Register.  However, the proposed rule could be further delayed or rescinded due to likely legal challenges.

If you have any questions about this Alert, we encourage you to reach out to your Shulman Rogers contact for solutions and recommendations for addressing these issues.

MORE INFORMATION

The contents of this Alert are for informational purposes only and do not constitute legal advice. If you have any questions about this Alert, please contact the Shulman Rogers attorney with whom you regularly work or a member of the Shulman Rogers Employment and Labor Law Group.

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CONTACT

Meredith “Merry” Campbell

Joy C. Einstein

Alexander I. Castelli

Drew T. Ricci