FTC Proposes Rule to Prohibit Non-Competes

One person is signing paperwork on a clip board.

What business owners need to know right now.

On January 5, 2023, the Federal Trade Commission (FTC) proposed a rule to prohibit non-competition clauses (“non-competes”) in employment agreements. 

Non-compete provisions include broadly written non-disclosure agreements that ban working in the same field post-employment and require employees to pay “training costs” if the employment terminates within a specified period. 

The FTC’s intention behind the proposal is to benefit workers and encourage competition. About one in five Americans are bound by a non-compete, with the figure soaring in specific industries.

Who does it impact?

Any company that has non-compete agreements with employees will have to take action if this law passes. However, the rule makes an exception for companies that want to prevent an owner or partner selling a business from immediately reentering the same industry.

Why it matters to employers

If the FTC implements the rule, it will keep employers from entering into or enforcing non-competes with employees or independent contractors. It would also require employers to dissolve any existing non-competes within six months. Several states already ban non-competes.

When would the rule take effect? 

Nothing is certain as of now. The rule is only proposed. There are several more steps before the FTC can issue a final rule, and it potentially faces legal action, which would delay implementation. If the rule is issued, the FTC would include a compliance period to give businesses time to comply with the guidance. 

Nextep is monitoring this rule and will continue to provide updates as needed. You can read more by visiting the FTC’s website or checking out this article for a deeper dive into the proposed FTC rule. 

If you have compliance questions concerning new legislation, reach out to your HR business partner. 

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