FTC Pursues Crackdown On Employee Noncompetes

Earlier this month, the Federal Trade Commission (FTC) launched unprecedented challenges to noncompete provisions in employment contracts through both rulemaking and individual enforcement actions.

Proposed Rule to Ban Noncompetes

Most significantly, on January 5, 2023, the FTC released a sweeping notice of proposed rulemaking (NPRM), aimed at barring the use of noncompete agreements by deeming those covenants to be an "unfair method of competition" in violation of Section 5 of the Federal Trade Commission Act (FTC Act). As drafted, the new rule would not only prohibit employers from entering into future noncompete covenants with employees or independent contractors (whether paid or unpaid), but would also require employers, within 180 days of publication of the final rule, to rescind existing noncompete clauses in agreements and require the employer to affirmatively notify employees that such clauses are no longer valid.