🔒FTC proposes sweeping changes to non-compete law

On Jan. 5, the Federal Trade Commission issued a notice of proposed rulemaking that would eliminate virtually all non-competition agreements applicable to employees. This would override even the relatively new Massachusetts non-compete statute, which significantly limits – but does not entirely eliminate – the use of non-compete clauses in the employment context.

Citing its authority to enforce Section 5 of the Federal Trade Commission Act, the FTC reasoned that non-competition agreements amount to unfair method of competition, as (in the FTC’s view) they stifle worker mobility and therefore depress wages and lessen employers’ need to offer better working conditions in order to vie for talent in the labor market. The far-reaching ban the FTC has proposed would apply not only to new arrangements but also to existing non-compete agreements, and the FTC would require employers to send individualized notices to employees (and even former employees where possible) who currently are subject to a non-competition agreement to inform them the non-competition provision is no longer effective.

While sweeping in its scope, the FTC proposal has a long way to go before it would become an enforceable regulation. The FTC is seeking comments on its proposal, and once that comment period expires, it will assess whether to adopt any modifications to the proposal before issuing its final rule. Whenever the FTC issues its final rule, business groups are likely to challenge the FTC’s regulatory authority to issue the regulation.

Nevertheless, this is a development worth monitoring.