Employers Beware: Non-Competes May Soon Violate Federal Law
The FTC, citing the negative impact on wages and career opportunities for American workers, has proposed a rule to ban employee non-competes in the U.S. The proposed rule defines non-compete broadly as “a contractual term between an employer and a worker that prevents 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.”
Additionally, the FTC proposes to ban any contractual clause that would have the effect of a de facto non-compete clause, such as:
An overbroad non-disclosure agreement;
A requirement to reimburse training costs upon termination when the amount is not reasonably related to the expense incurred by the employer.
Significantly, the proposed rule will invalidate pre-existing non-competes. Employers will have an affirmative duty to inform employees and former employees in writing that they have rescinded the non-compete.
This rule covers paid and unpaid independent contractors, consultants, volunteers, interns, etc., who have provided services to the employer.
There is a narrow exception for owners who enter into non-competes when selling their business.
This rule won’t change much for my California clients, as most non-competes have been unenforceable since the 1800s in the Golden State.
The FTC has recently extended the public comment period to April 19, 2023. It will take some time for the FTC to review all the comments and decide how to proceed. Undoubtedly, if adopted, the rule will be challenged and possibly enjoined. So, stay tuned for future updates.
***Content is provided for educational and informational purposes only and is not intended and should not be construed as legal advice.***