On January 5, 2023, the U.S. Federal Trade Commission (FTC) issued a proposed rule that would prohibit nearly all non-compete clauses between employers and workers going forward and would also require employers to promptly rescind existing non-competes with workers. If finalized, this non-compete ban would have a monumental impact on the health care industry, among numerous others.
The proposed rule is the result of FTC studies and analyses (including reviews of state laws that have already banned certain employment-related non-competes) concluding that non-competes depress worker wages and “prevent new businesses from forming, stifling entrepreneurship, and prevent novel innovation which would otherwise occur when workers are able to broadly share their ideas.” The FTC “estimates that the proposed rule would increase American workers’ earnings between $250 billion and $296 billion per year.” A fact sheet published by the FTC offers additional background information.
The FTC’s proposed rule would apply to nearly every non-compete clause (or substantively comparable provision) between a worker (i.e., employee or contractor) and employer. If enacted, employers would have to promptly notify all applicable workers (including former workers) that their non-compete clauses are no longer in effect. As written, the rule would apply to all workers whether full-time or part-time, professional or non-professional, high-wage or low-wage, etc. The only current exception would be for non-competes entered into by sellers (or substantial, i.e., 25%, owners of sellers) in connection with the sale of their businesses. No other exceptions or carve-outs are currently included in the proposed rule.
As the proposed ban will certainly become a hotly debated topic, the FTC is seeking public comments on the proposed rule generally, and specifically the possibility of adding exceptions or modifications for franchisees, senior executives, high-wage workers, etc. Comments must be received within 60 days of the FTC’s publication of the proposed rule in the Federal Register.
We will continue to monitor developments with respect to the FTC’s proposed non-compete ban and publish additional guidance and details in the near future.