FTC Proposes Rule to Ban Noncompete Clauses

Date   Jan 5, 2023

On January 5, 2023, the Federal Trade Commission (FTC) released a Notice of Proposed Rulemaking (NPRM) (available here) that would ban employers from imposing noncompetes on their workers. The proposed rule would prohibit employers from entering into noncompete clauses with their workers, including independent contractors, and would require employers to rescind existing noncompete clauses with workers and actively inform them that the clauses are no longer in effect. An employer that entered into a noncompete clause prior to the compliance date must rescind the noncompete clause no later than the compliance date and must provide notice to a worker within 45 days of rescinding the noncompete clause.

The NPRM invites the public to submit comments regarding the proposed rule to the FTC, which will consider them before issuing a final rule. Comments will be due 60 days after the Federal Register publishes the proposed rule. The compliance date will be 180 days after the date of publication of the final rule.

The FTC asserts that it has the authority to issue the proposed rule pursuant to Section 5 of the FTC Act, which bans unfair methods of competition. However, it is unclear whether the FTC has the statutory authority to regulate noncompete agreements between employers and employees as opposed to between companies. Additionally, the Supreme Court’s decision last year in West Virginia v. EPA casts further doubt on the FTC’s authority to issue such a rule. In that case, the Court held that the EPA lacks authority under the Clean Air Act to impose emission gaps by shifting electricity production from higher-emitting to lower-emitting producers. The Court said the EPA’s action represented a major question of economic and political significance and that an administrative agency has no power to make a decision about such major questions unless Congress clearly gave it such authority. Similarly, the FTC's proposed rule might not withstand a legal challenge under the “major questions” doctrine.

The Workforce Mobility Act of 2021 was introduced in Congress to prohibit the use of noncompete clauses other than in the sale of a business or partnership but did not pass. Traditionally, states have regulated noncompete clauses. California, North Dakota and Oklahoma have largely eliminated noncompete clauses. In recent years, several other states have increasingly limited the use of noncompete clauses, particularly for low-wage workers. In most states the enforceability of noncompete clauses has been determined under general standards of reasonableness related to duration, geography, scope of activity and sufficiency of consideration.

Employers’ Bottom Line

The FTC’s proposed rule would nullify noncompete clauses affecting millions of workers around the country and would take authority away from states, which traditionally have regulated noncompete clauses. It is anticipated that the FTC’s action will be vigorously opposed by business groups and challenged in court before a final rule would go into effect.

Until such time as a final FTC rule goes into effect, employers may continue to enforce and enter into noncompete clauses with their workers, subject to applicable state laws. FordHarrison will provide updates regarding the proposed FTC rule.

If you have any questions regarding this Alert, please contact the author, Rick Warren, a partner in our Atlanta office at Of course, you can also contact the FordHarrison attorney with whom you usually work.