{"id":10233,"date":"2026-04-10T00:45:41","date_gmt":"2026-04-10T00:45:41","guid":{"rendered":"https:\/\/usatrustedlawyers.com\/blog\/ftc-proposes-to-ban-non-compete-agreements-and-takes-first-ever-enforcement-actions-against-companies-for-imposing-non-compete-terms-on-workers\/"},"modified":"2026-04-10T00:45:41","modified_gmt":"2026-04-10T00:45:41","slug":"ftc-proposes-to-ban-non-compete-agreements-and-takes-first-ever-enforcement-actions-against-companies-for-imposing-non-compete-terms-on-workers","status":"publish","type":"post","link":"https:\/\/usatrustedlawyers.com\/blog\/ftc-proposes-to-ban-non-compete-agreements-and-takes-first-ever-enforcement-actions-against-companies-for-imposing-non-compete-terms-on-workers\/","title":{"rendered":"FTC Proposes to Ban Non-Compete Agreements, and Takes First-Ever Enforcement Actions Against Companies for Imposing Non-Compete Terms on Workers"},"content":{"rendered":"\n
\n

On January 5, 2023, the Federal Trade Commission (\u201cFTC\u201d) issued a notice of proposed rulemaking<\/a> that, if implemented, would prevent employers from entering into non-compete clauses with workers, and require employers to rescind existing non-compete clauses. This action comes one day after the FTC obtained its first-ever consent agreements<\/a> against three companies for imposing non-compete restraints on workers, on the theory that it was in violation of Section 5 of the FTC Act, which generally prohibits \u201cunfair methods of competition.\u201d<\/p>\n

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Proposed Rule<\/h3>\n

At present, the enforceability of non-competition provisions is a matter of state law, and the states vary in their views of such provisions.<\/p>\n

Under the proposed national rule, it would be an \u201cunfair method of competition for an employer to enter into or attempt to enter into a non-compete clause with a worker; maintain with a worker a non-compete clause; or represent to a worker that the worker is subject to a non-compete clause where the employer has no good faith basis to believe that the worker is subject to an enforceable non-compete clause.\u201d A non-compete clause is defined in the proposed rule as \u201ca contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker\u2019s employment with the employer,\u201d and includes a \u201ccontractual term that is a de facto<\/em> non-compete clause because it has the effect of prohibiting the worker from seeking or accepting employment with a person or operating a business after the conclusion of the worker\u2019s employment with the employer.\u201d The proposed prohibition would extend not only to employees, but also to other work arrangements, including independent contractors, interns, externs, volunteers or a \u201csole proprietor who provides a service to a client or customer.\u201d<\/p>\n

The proposed rule would also require \u201can employer that entered into a [pre-existing] non-compete clause with a worker\u201d to \u201crescind the non-compete clause\u201d no later than 180 days after the final rule is published. To rescind existing non-compete clauses, employers would be required to \u201cprovide notice to the worker that the worker\u2019s non-compete clause is no longer in effect and may not be enforced against the worker.\u201d That communication would have to be \u201cindividualized\u201d and \u201con paper or in a digital format such as, for example, an email or text message.\u201d Such notice must be delivered \u201cwithin 45 days of rescinding the non-compete clause.\u201d This requirement applies both to existing and former workers, to the extent \u201cthe worker\u2019s contact information [is] readily available.\u201d<\/p>\n

The proposed rule contains a narrow sale-of-business exception, which is applicable only to \u201ca person who is selling a business entity or otherwise disposing of all of the person\u2019s ownership interest in the business entity, or by a person who is selling all or substantially all of a business entity\u2019s operating assets, when the person restricted by the non-compete clause is a substantial owner of, or substantial member or substantial partner in, the business entity at the time the person enters into the non-compete clause.\u201d As noted below, the FTC is specifically seeking comments from the public on whether senior executives and high-wage earners also should be excluded from the proposed ban.<\/p>\n

If it were adopted, the proposed rule would likely face prompt legal challenge. As FTC Commissioner Noah Phillips explained<\/a> in 2020, the FTC has never before issued a competition rule that relies solely on the FTC Act\u2019s general prohibition of \u201cunfair methods of competition.\u201d Commission Phillips at the time noted \u201cthe traditional commitment of the issue to the states\u201d and lack of historical precedent, and also raised concerns about whether Congress had appropriately delegated to the FTC the authority to issue a rule banning non-compete agreements. The Supreme Court has recently applied similar reasoning to the Commissioner\u2019s final point in its January 2022 decision striking down a Department of Labor rule that required most employers to mandate COVID vaccination, writing, \u201cAdministrative agencies are creatures of statute. They accordingly possess only the authority that Congress has provided.\u201d NFIB<\/em> v. OSHA<\/em>, 142 S. Ct. 661, 665 (2022). Challenges to the proposed rule may also arise under the \u201cmajor questions doctrine,\u201d which, as articulated by the Supreme Court in June 2022, considers whether agencies are \u201casserting highly consequential power beyond what Congress could reasonably be understood to have granted.\u201d West Virginia<\/em> v. EPA,<\/em> 142 S. Ct. 2587, 2609 (2022). \u201cUnder that doctrine\u2019s terms, administrative agencies must be able to point to clear congressional authorization when they claim the power to make decisions of vast economic and political significance.\u201d Id<\/em>. at 2616 (Gorsuch, J., concurring). Additionally, under the Congressional Review Act, Congress is entitled to a 60-day period to review the rule, and during that period could pass a joint resolution disapproving the rule, which would require either approval by the President or, if the President vetoed, an override of the veto by a supermajority of Congress.<\/p>\n

The FTC Commissioners voted 3-1 along partisan lines to issue the proposed rule, with the sole Republican commissioner, Christine Wilson, voting no<\/a>. In her dissenting statement, Commissioner Wilson explained that the proposed rule \u201crepresents a radical departure from hundreds of years of legal precedent that employs a fact-specific inquiry into whether a non-compete clause is unreasonable in duration and scope, given the business justification for the restriction.\u201d Commissioner Wilson noted her expectation that the \u201cCommission\u2019s competition rulemaking authority itself certainly will be challenged,\u201d including under the \u201cmajor questions doctrine\u201d addressed in West Virginia<\/em> v. EPA<\/em>, as the \u201cCommission lacks clear Congressional authorization to undertake this initiative.\u201d Commission Wilson concluded that the \u201cproposed rule will lead to protracted litigation in which the Commission is unlikely to prevail.\u201d<\/p>\n

Once the proposed rule is published in the Federal Register, the public will have 60 days to submit comments. The FTC stated that, in particular, it is seeking comments<\/a> on (i) whether franchisees should be covered by the rule; (ii) whether senior executives should be exempted from the rule, or subject to a rebuttable presumption rather than a ban; and (iii) whether low- and high-wage workers should be treated differently under the rule.<\/p>\n

Recent FTC Enforcement Actions<\/h3>\n

On January 4, 2022\u2014one day prior to the issuance of the proposed rule\u2014the FTC announced<\/a> that it had, for first time, filed complaints and obtained consent agreements against three companies to \u201cforc[e] them to drop noncompete restrictions that they imposed on thousands of workers.\u201d The complaints, which are based on Section 5 of the FTC Act, are against companies that employ low-wage security guards and glass container manufacturing workers. Under the consent agreements, the companies agreed to cease and desist from entering into or enforcing non-compete agreements with their workers.<\/p>\n

Commissioner Wilson dissented from both consent agreements, noting (among other things) that, in her view, the FTC should not \u201ccondemn conduct summarily as an unfair method of competition based on little more than the assignment of adjectives\u201d and that she has \u201cseen no evidence of anticompetitive effects that would give [her] reason to believe that respondents have violated Section 5 of the FTC Act.\u201d Commissioner Wilson\u2019s dissents are available here<\/a> and here<\/a>.<\/p>\n

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The FTC\u2019s proposed rule follows President Biden\u2019s July 2021 executive order urging the FTC to ban or limit non-compete agreements. Our memorandum on that order is available here.<\/p>\n

The proposed rule is the latest development in a string of recent actions seeking to regulate employment-related agreements at a federal level. Our blog post about the \u201cSpeak Out Act,\u201d which makes non-disclosure or non-disparagement agreements signed before a dispute arose unenforceable in certain contexts with respect to claims of sexual assault or sexual harassment, is available here. Our memorandum on related legislation that prohibits mandatory arbitration of sexual assault and sexual harassment claims is available here.<\/p>\n<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"

On January 5, 2023, the Federal Trade Commission (\u201cFTC\u201d) issued a notice of proposed rulemaking that, if implemented, would prevent employers from entering into non-compete clauses with workers, […]<\/p>\n","protected":false},"author":1,"featured_media":10234,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[651,718,524,1046,1385,7491,352,7697,454,1542,203,1710,499],"class_list":["post-10233","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-lawyers","tag-actions","tag-agreements","tag-ban","tag-companies","tag-enforcement","tag-firstever","tag-ftc","tag-imposing","tag-noncompete","tag-proposes","tag-takes","tag-terms","tag-workers"],"_links":{"self":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts\/10233","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/comments?post=10233"}],"version-history":[{"count":0,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts\/10233\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/media\/10234"}],"wp:attachment":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/media?parent=10233"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/categories?post=10233"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/tags?post=10233"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}