On January 5, 2023, the Federal Trade Commission (FTC) announced a proposed Non-Compete Clause Rule (NPRM) to prohibit employers from imposing non-compete clauses on workers across the nation. In addition to banning new non-compete agreements, the NPRM would make the majority of existing non-compete agreements null and void. Also on the chopping block is the use of broadly worded non-disclosure agreements, charging employees for training, and a myriad of other ways employers limit competition.
Why the Government is Proposing the Rule
The proposed rule follows President Joe Biden’s July 9, 2021, Executive Order on Promoting Competition in the American Economy, in which the President requested the FTC consider such a rule in an effort to increase employee mobility. According to the FTC and researchers, lifting these restrictions on employees would lead to increased competition and higher employee wages.
What Employers Can Do Now to Be Prepared
Although there are strong objections to the proposed rule already being voiced, employers must consider how the implementation of the rule will impact them, their employees, and their third-party contractors. Employers should prepare now by:
- Assessing what existing non-compete agreements would be in violation of the rule;
- Considering alternative methods of protecting proprietary information to avoid unfair pirating of business models, prevent predatory business practices, and otherwise plan for the resulting business ramifications; and
- Developing a communications plan to effectively and efficiently inform employees and third-party contractors of the rule change.
How to Make Your Voice Heard
The FTC invites the public to submit comments on the proposed rule. The comment period is open through March 10, 2023, and can be made on the FTC website.
The GrayRobinson Labor and Employment and Intellectual Property attorneys are monitoring the FTC’s proposed rule eliminating non-competes and will bring you updates as developments occur.