Federal Trade Commission proposes end to non-competes

On Behalf of | Feb 6, 2023 | Business Disputes, Outsourced Business Counsel |

The FTC recently made national news when it publicly proposed an end to nearly all non-compete agreements. These clauses are currently part of an estimated 30 million employment contracts (18% of the U.S. workforce). Advocates for businesses responded quickly and forcefully against this change.

Advocates of the change in regulation argue that the non-compete clause is an unfair method that stifles competition because the agreements or clauses often are too broadly preventing workers from seeking or accepting employment, starting a new business, or operating an existing one at the conclusion of their previous job. They estimate that removing the clause would be a $300 billion boost in annual pay to workers.

The change would impact nearly all existing non-compete agreements, rescinding them within 180 days of the official rule change. Exceptions to the rule change include non-competes entered into as part of mergers and acquisitions and franchisor and franchisee relationships. They would also have to own at least 25% of the company. If the rule change happens, only the FTC could enforce a non-compete.

Critics claim overreach

The U.S. Chamber of Commerce (USCOC) and others announced that they would fight the FTC, claiming the rule change is legal overreach. The USCOC said that it take to the FTC to court.

What to expect next

Workers and employers can submit their thoughts on the change to the FTC. The 60-day comment period is scheduled to end on March 10. At that time, the commission will review the submissions and make the appropriate changes based on the feedback it gets.

As of now, it is business as usual. Nevertheless, companies should prepare. It may be a matter of drafting or enforcing non-disclosure or non-solicit agreements to replace the non-compete or finding other options specific to the company. Companies with questions about this and other legal issues can consult with an attorney who handles business law disputes and agreements.