Federal Trade Commission to Vote on Proposed Noncompete Ban on April 23

At that meeting, it is expected that the FTC will disclose the proposed final rule, Chair Lina Khan will offer brief remarks followed by a presentation by FTC staff, and then the Commission will vote whether to issue the final rule.

As we have previously covered in detail (here, here, and here) the FTC issued its Notice of Proposed Rulemaking in January 2023. The proposed rule in the form previously disclosed by the FTC for public comment would ban employers from requiring workers to sign noncompetes and require recission of existing noncompetes. The proposed rule would apply broadly, not just to all employees, but also to independent contractors and to any individual who works for an employer, whether paid or unpaid (e.g., externs, interns, volunteers, apprentices, or sole proprietors). It also would apply not just to noncompetes that expressly prohibit a worker from seeking or accepting certain employment after the conclusion of the worker’s employment with the employer, but also to any contractual provision that functions as a de facto noncompete.

The proposed rule was subject to a 90-day public comment period. After announcing the proposed rule, the FTC received over 26,000 comments, which has contributed to the delay in voting.

In the event the rule as proposed receives sufficient votes from the Commissioners to be published as a final rule, it is widely believed that there will be immediate litigation filed challenging the FTC’s authority. The US Chamber of Commerce, for example, has indicated that it will go to court “to stop the legally baseless ban on noncompete clauses.” For a full discussion of anticipated legal challenges to the rule, and the grounds for those challenges, see our earlier article on the topic here.

While any challenges are pending, employers should be prepared to address difficult questions from employees about whether their noncompetes are still enforceable. Currently just four states ban the use of noncompetes, each with specific limitations on the ban. The FTC’s proposed rule would therefore introduce significant uncertainty for employers, particularly in light of the fact that, as a practical matter, the enforceability of the rule and the impacts of the rule likely will not be resolved for some time. Meanwhile, employers should evaluate their use of noncompetition agreements and should consider additional or alternative means to protect their legitimate business interests, including through other restrictive covenants or other contractual provisions and ensuring reasonable steps are taken to protect confidential information and trade secrets.

The April 23 meeting is open to the public and will be streamed via webcast on FTC.gov. ArentFox Schiff LLP will monitor and issue an additional alert promptly following the open meeting.