You may have heard that lawmakers are outlawing non-compete agreements. Not so fast. On January 5, 2023, the Federal Trade Commission (FTC) proposed a new rule that would ban employers from entering into non-competition agreements with their employees. The proposed rule would also require employers to tell their employees that existing non-compete clauses are no longer enforceable. The FTC is proposing this rule because the agency thinks non-compete clauses are an unfair restriction on competition. But this is only a proposed rule at this point. It does not have the force of law until it is published. Even after the rule is published, and becomes enforceable, a court may strike it down.
Non-compete clauses are meant to prevent an employee from seeking or accepting work with a different employer, typically one that is in the same business or industry as the employee's former employer. The FTC will be seeking public comment on the rule, with all proposed comments due 60 days after publication in the Federal Register. No effective date has been proposed and it is unlikely to become effective until the Fall of 2023.
The rule, if passed, will apply to employees, but not to the sale of a business. Companies that purchase another business will still be able to restrict competition for those owners that sell at least a 25 percent share of the company. The rule will apply in all states, regardless of any state law that may permit such agreements.