On January 5, 2023, the Federal Trade Commission (FTC or Commission) announced a notice of proposed rulemaking that would ban employers from entering non-compete agreements with their employees. Under proposed rule 16 CFR § 910, it would be an unfair method of competition (UMC) in violation of Section 5 of the FTC Act for an employer to enter, or attempt to enter, a non-compete clause with paid or unpaid staff or independent contractors.
The proposed rule marks a significant step in the FTC’s plans to use its rulemaking authority to sanction conduct it views as deleterious to workers and the economy. As written, it is also a radical departure from current federal antitrust law, which calls for an assessment of the competitive effects of the non-compete clause in a relevant market to determine whether it is unlawful.
The proposed rule will be subject to public comment for 60 days and is likely to be highly controversial. If this or a similar rule were to issue, litigation about whether the FTC has the statutory power to engage in UMC rulemaking is virtually certain.
The FTC announced the proposed rule the day after it announced consent decrees with three employers and two individuals for entering non-compete clauses with their employees, which were alleged to constitute “stand alone” Section 5 violations grounded in UMC without any allegations that the clauses were illegal restraints of trade under Section 1 of the Sherman Act.