FTC Proposes To Ban Employee Noncompete Agreements

On January 5, 2023, the Federal Trade Commission ("FTC") proposed a rule (the "Proposed Rule") that would prohibit companies from imposing post-employment noncompete agreements. If enacted, the Proposed Rule would bar employers from entering into noncompete agreements with employees, independent contractors, and unpaid workers, and would require employers to repeal or nullify any existing restrictions within six months of the Proposed Rule's effective date.

The Proposed Rule would permit noncompete agreements in connection with the sale of a business, but only where the party restricted by the non-compete clause is an owner, member, or partner holding at least a 25 percent ownership interest in a business entity. The Proposed Rule would not prohibit non-disclosure agreements ("NDAs") or customer non-solicitation agreements because, as the FTC has explained, "these covenants generally do not prevent a worker from seeking or accepting employment with a person or