Mar 6 -- FTC Extends Public Comment Period on Its Proposed Rule to Ban Noncompete Clauses Until April 19
https://www.ftc.gov/news-events/news/press-releases/2023/03/ftc-extends-public-comment-period-its-proposed-rule-ban-noncompete-clauses-until-april-19
Apr 6 -- FRN: the comment deadline is extended from March 20, 2023, to April 19, 2023.
https://www.federalregister.gov/d/2023-07036
1) Feb 2 -- The Federal Trade Commission will host a public forum on Thursday, February 16 examining the FTC’s proposed rule to prohibit employers from imposing noncompetes on their workers, and providing an opportunity for people to directly share their experiences with noncompetes.The forum will be held virtually from 12 noon to 3 p.m. EDT. It will be webcast on the FTC’s website, transcribed, posted online, and included as part of the public record. The commission will hear from a series of speakers who have been subjected to noncompete restrictions, as well as business owners who have experience with noncompetes. After, members of the public will have an opportunity to comment via livestream.
Agenda:
https://www.ftc.gov/news-events/news/press-releases/2023/02/ftc-releases-final-agenda-feb-16-public-forum-its-proposed-rule-ban-noncompete-restrictions
News release:
https://www.ftc.gov/news-events/news/press-releases/2023/02/ftc-host-public-forum-examining-proposed-rule-ban-noncompete-clauses
2) Jan 19 -- The Federal Trade Commission (“Commission”) is proposing the Non-Compete Clause Rule. The proposed rule would, among other things, provide that it is an unfair method of competition for an employer to enter into or attempt to enter into a non-compete clause with a worker; to maintain with a worker a non-compete clause; or, under certain circumstances, to represent to a worker that the worker is subject to a non-compete clause. Comments must be received on or before March 20, 2023.
A non-compete clause is a contractual term between an employer and a worker that typically blocks the worker from working for a competing employer, or starting a competing business, within a certain geographic area and period of time after the worker's employment ends. Non-compete clauses limit competition by their express terms. As a result, non-compete clauses have always been considered proper subjects for scrutiny under the nation's antitrust laws. In addition, non-compete clauses between employers and workers are traditionally subject to more exacting review under state common law than other contractual terms, due, in part, to concerns about unequal bargaining power between employers and workers and the fact that non-compete clauses limit a worker's ability to practice their trade.
In recent decades, important research has shed light on how the use of non-compete clauses by employers affects competition. Changes in state laws governing non-compete clauses have provided several natural experiments that have allowed researchers to study the impact of non-compete clauses on competition. This research has shown the use of non-compete clauses by employers has negatively affected competition in labor markets, resulting in reduced wages for workers across the labor force—including workers not bound by non-compete clauses. This research has also shown that, by suppressing labor mobility, non-compete clauses have negatively affected competition in product and service markets in several ways.
In this rulemaking, the Commission seeks to ensure competition policy is aligned with the current economic evidence about the consequences of non-compete clauses. In the Commission's view, the existing legal frameworks governing non-compete clauses—formed decades ago, without the benefit of this evidence—allow serious anticompetitive harm to labor, product, and service markets to go unchecked.
Section 5 of the Federal Trade Commission Act (“FTC Act”) declares “unfair methods of competition” to be unlawful. Section 5 further directs the Commission “to prevent persons, partnerships, or corporations . . . from using unfair methods of competition in or affecting commerce.” Section 6(g) of the FTC Act authorizes the Commission to “make rules and regulations for the purpose of carrying out the provisions of” the FTC Act, including the Act's prohibition of unfair methods of competition.
Pursuant to Sections 5 and 6(g) of the FTC Act, the Commission proposes the Non-Compete Clause Rule. The proposed rule would provide it is an unfair method of competition—and therefore a violation of Section 5—for an employer to enter into or attempt to enter into a non-compete clause with a worker; maintain with a worker a non-compete clause; or, under certain circumstances, represent to a worker that the worker is subject to a non-compete clause.
The proposed rule would define the term “non-compete clause” 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.
The proposed rule would also clarify that whether a contractual provision is a non-compete clause would depend not on what the provision is called, but how the provision functions. As the Commission explains below, the definition of non-compete clause would generally not include other types of restrictive employment covenants—such as non-disclosure agreements (“NDAs”) and client or customer non-solicitation agreements—because these covenants generally do not prevent a worker from seeking or accepting employment with a person or operating a business after the conclusion of the worker's employment with the employer. However, under the proposed definition of “non-compete clause,” such covenants would be considered non-compete clauses where they are so unusually broad in scope that they function as such.
The proposed rule would define “employer” as a person—as the term “person” is defined in 15 U.S.C. 57b-1(a)(6)—that hires or contracts with a worker to work for the person.
The proposed rule would define “worker” as a natural person who works, whether paid or unpaid, for an employer. The proposed rule would clarify that the term “worker” includes an employee, individual classified as an independent contractor, extern, intern, volunteer, apprentice, or sole proprietor who provides a service to a client or customer.
In addition to prohibiting employers from entering into non-compete clauses with workers starting on the rule's compliance date, the proposed rule would require employers to rescind existing non-compete clauses no later than the rule's compliance date. The proposed rule would also require an employer rescinding a non-compete clause to provide notice to the worker that the worker's non-compete clause is no longer in effect. To facilitate compliance, the proposed rule would (1) include model language that would satisfy this notice requirement and (2) establish a safe harbor whereby an employer would satisfy the rule's requirement to rescind existing non-compete clauses where it provides the worker with a notice that complies with this notice requirement.
The proposed rule would include a limited exception for non-compete clauses between the seller and buyer of a business. This exception would only be available where the party restricted by the non-compete clause is an owner, member, or partner holding at least a 25% ownership interest in a business entity. The proposed regulatory text would clarify that non-compete clauses covered by this exception would remain subject to federal antitrust law as well as all other applicable law.
The proposed rule would establish an effective date of 60 days, and a compliance date of 180 days, after publication of a final rule in the Federal Register.
In this notice of proposed rulemaking (“NPRM”), the Commission describes and seeks comment on several alternatives to the proposed rule, including whether non-compete clauses between employers and senior executives should be subject to a different standard than non-compete clauses with other workers. The Commission also assesses the benefits and costs of the proposed rule, the impact of the proposed rule on small businesses, and compliance costs related to the proposed rule's notice requirement.
The Commission seeks comment on all aspects of this NPRM. Comments must be received on or before March 20, 2023.
https://www.federalregister.gov/d/2023-00414 [65 pages]
Jan 5 -- FTC Proposes Rule to Ban Noncompete Clauses, Which Hurt Workers and Harm Competition: Agency estimates new rule could increase workers’ earnings by nearly $300 billion per year [news release]
. . . Specifically, the FTC’s new rule would make it illegal for an employer to:
-- enter into or attempt to enter into a noncompete with a worker;
-- maintain a noncompete with a worker; or
-- represent to a worker, under certain circumstances, that the worker is subject to a noncompete.
The proposed rule would apply to independent contractors and anyone who works for an employer, whether paid or unpaid. It would also require employers to rescind existing noncompetes and actively inform workers that they are no longer in effect.
The proposed rule would generally not apply to other types of employment restrictions, like non-disclosure agreements. However, other types of employment restrictions could be subject to the rule if they are so broad in scope that they function as noncompetes. . . .
The Commission voted 3-1 to publish the Notice of Proposed Rulemaking, which is the first step in the FTC’s rulemaking process. Chair Khan, Commissioner Rebecca Kelly Slaughter and Commissioner Alvaro Bedoya issued a statement. Commissioner Slaughter, joined by Commissioner Bedoya, issued an additional statement. Commissioner Christine S. Wilson voted no and also issued a statement.
https://www.ftc.gov/news-events/news/press-releases/2023/01/ftc-proposes-rule-ban-noncompete-clauses-which-hurt-workers-harm-competition
Fact Sheet: FTC Proposes Rule to Ban Noncompete Clauses, Which Hurt Workers and Harm Competition
https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete_nprm_fact_sheet.pdf
3) Jan 17 -- FTC Plan to Ban Noncompete Clauses Shifts Companies’ Focus: Ban could prompt employers to use alternative mechanisms such as nondisclosure agreements (WSJ)
https://www.wsj.com/articles/ftc-plan-to-ban-noncompete-clauses-shifts-focus-to-deferred-pay-nondisclosure-agreements-11673904728?st=obeb09cqhdeacif&reflink=desktopwebshare_permalink
4) Jan 23 -- The FTC’s Proposed Non-Compete Rule -- CRS report
https://crsreports.congress.gov/product/pdf/LSB/LSB10905