FTC Bans Non-Compete Clauses: What Employers Need to Know

Yesterday, the Federal Trade Commission (FTC) voted to ban all non-compete clauses in written employment agreements in all 50 states.  The ban will go into effect in 120 days and applies to non-compete clauses that are currently in place. This proposal, shaped by Sections 5 and 6(g) of the Federal Trade Commission Act, aims to redefine the landscape of non-compete agreements between employers and workers. Click here to read the FTC Non-Compete Clause Rule.

Here’s a breakdown of the non-compete clause ban:

• Prohibition on Non-Compete Agreements: The rule would prohibit employers from entering into or attempting to establish non-compete clauses with workers.

• Maintenance of Non-Compete Clauses: Employers would be barred from maintaining existing non-compete clauses with workers and would have a duty to inform the employees that the non-compete clauses are no longer valid.

• Representation to Workers: Under specific circumstances, it would be deemed unfair for employers to indicate to workers that they are subject to a non-compete clause.

Still allowed: NDAs, Confidentiality Agreements, Non-Solicitation and Non-Raiding Agreements

• The ban on non-competes does not appear to affect an employer’s ability to have written employment agreements that contain NDAs, confidentiality agreements and non-solicitation of customers/clients.

• Consult a business lawyer with employment law experience to ensure that your written employment agreements give you the highest possible protection allowable and is legal under the ban.  

Potential Challenges and Discussions  

The U.S. Chamber of Commerce made a statement that it will sue to block the new ban and wrote a comment opposing the ban. The Chamber argued that non-compete clauses help encourage companies to invest in their employees through development and training without risking that the employee will open a competing business. Click here to read the FTC Non-Compete Clause Rule.

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The new FTC ban on non-competes (if it is not blocked) is a significant change for employers, and employers should strategically implement clear policies that are properly communicated to employees.