Proposed FTC Rule Would Ban Most Non-Compete Agreements

Non-compete agreements limit employees’ options after they leave a job. Sometimes the non-compete might have a geographic restriction, stopping an employee from working within a certain radius or in nearby cities or counties. Other times, the contract might prevent an employee from working for specific competitors or in certain lines of business. The intent of non-competes is to prevent employees from taking their knowledge or the company’s clients elsewhere. But these agreements also can devastate workers’ abilities to continue their careers in their chosen fields. The Federal Trade Commission (FTC) estimates that roughly one in five American workers are currently subject to non-compete agreements.

In January 2023, the FTC announced a proposed rule that would effectively ban non-compete agreements except in very limited circumstances. The FTC said non-competes are “unfair methods of competition” under the FTC Act. The proposed rule would bar employers from imposing non-competes on employees, independent contractors, interns and consultants. It would also automatically rescind any existing non-compete clauses and require employers to inform employees that they are no longer bound by those clauses.

The FTC says that if the proposed rule were to go into effect, the following economic benefits would be expected:

• Workers’ earnings would increase by $250 billion to 290 billion annually.
• Consumer health care costs would decrease approximately $148 billion annually.
• The number of new businesses started by former employees in a given industry would double.

The FTC rulemaking process normally takes several years. There could be changes to the proposed rule as the business community inevitably challenges it and tries to get the rule pared down.

In the meantime, the U.S. Senate is taking action to ban non-competes. A bipartisan coalition of senators is sponsoring the Workforce Mobility Act of 2023. This legislation, if passed, would ban non-competes nationwide. Unlike the FTC’s rule, the law would not rescind existing non-competes. But, the law would authorize not just the FTC but also the Department of Labor, state attorneys general and individual employees to sue employers who violate it.

As things currently stand, non-compete agreements are still legal and binding. If you are subject to such a restriction and believe you have a reason to challenge its validity, you’ll want to enlist the help of an experienced New Jersey employment attorney who can examine the contract and let you know your options.

At Deutsch Atkins & Kleinfeldt, P.C. our New Jersey employment lawyers are monitoring the ongoing movement toward banning non-competes while advising and representing clients facing non-compete issues under current law. If you need advice or representation regarding a non-compete agreement, please call our Hackensack office at 551-245-8894 or contact us online at your convenience.