Employment non-compete clauses may be banned nationwide

January 13, 2023

Raise your hand if you’ve ever had to sign a non-compete clause at your job.

I know it’s not just me. 30 million of you had to sign one too. Well now, the federal government is looking at banning them across the country.

If you’ve never had to sign a non-compete before – lucky you – here’s what it is. Basically it’s a legal document lots of employees have to sigh that prevents them from either taking another job with a rival company or starting a competing business. Sometimes non-competes have a time limitation like –  you can’t do either of those things for 2 years after you leave the company. A handful of states – like California – ban then and most states limit them in some way.

But now the Federal Trade Commission issued a proposed new rule last week that would require companies to not only – stop requiring non-compete clauses for new employees – but also rescind any current non-competes in existence and let employees know they’re gone. These non-competes would also apply to independent contractors and anyone who works for an employer whether it’s paid or unpaid. The only exception is if for buyers and sellers of businesses, you can be subject to a non-compete clause.  

The FTC says those non-competes are exploitive practice that “suppresses wages, hampers innovation and blocks entrepreneurs from starting new businesses.” But the FTC isn’t just randomly doing this on its own. More than a year and a half ago President Biden ordered them to ban or limit them.

Now—there’s already push back – obviously—from the business community that says non-competes have real benefits like the safeguarding of intellectual property. The US Chamber of Commerce is even considering filing a lawsuit claiming the FTC doesn’t have the authority to do this. The FTC disagrees.

As I said – at this point – this rule is just *proposed*. The FTC commission voted 3-1 to preliminarily move forward with this process. Now the public will have until March 10^th to comment on the rule. After that, it can be adopted as a new rule.

More information from the FTC about the proposed rule here

Actual FTC Rule here.