FTC Proposed Ban on Noncompetes

Status

On April 23, the Federal Trade Commission voted 3-2 to issue its final rule to ban noncompete clauses. The final rule will become effective 120 days after publication in the Federal Register.

According to the FTC, under the new rule, existing noncompetes for the vast majority of workers will no longer be enforceable after the rule’s effective date. Existing noncompetes for senior executives can remain in force, but employers are banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives. Employers will be required to provide notice to workers other than senior executives who are bound by an existing noncompete that they will not be enforcing any noncompetes against them. To learn more about the final rule and what happens next, read ABC general counsel Littler Mendelson’s analysis.

ABC issued a news release opposing the rule:

“The final rule to ban all noncompete agreements nationwide—except existing noncompetes for senior executives—is a radical departure from hundreds of years of legal precedent,” said Ben Brubeck, ABC vice president of regulatory, legal and state affairs. “Ultimately, this vastly overbroad rule will invalidate millions of reasonable contracts—including construction project contracts—around the country that are beneficial for both businesses and employees.”

As ABC argued in its comments submitted April 19, 2023, in opposition to the FTC’s unprecedented proposal to ban noncompete agreements:

  • The FTC lacks the statutory and constitutional authority to issue this rulemaking
  • Noncompete agreements are appropriately regulated at the state level
  • The proposed rule violates the Administrative Procedure Act
  • A blanket ban on noncompete agreements will harm the construction industry overall, especially small businesses

ABC also joined the U.S. Chamber of Commerce and 280 business groups in submitting comments urging the FTC to rescind the proposed rule in April 2023.

Desired Outcome

ABC members have valid business justifications for utilizing noncompete agreements, such as protecting confidential information and intellectual property. This new rule will have a harmful effect on their companies as well as their employees, forcing companies to rework their compensation and talent strategies.