Federal Trade Commission Proposes New Rule: Is This The Death Knell For Non-Compete Agreements?

As we’ve explained elsewhere on our website, because non-compete agreements can turn employees into indentured servants, we would like to see non-compete agreements outlawed. We were therefore greatly encouraged to see the United States Federal Trade Commission propose a new rule on January 5, 2023, that, once finalized, would put an end to non-compete agreements once and for all.

Here’s a quick overview of the rule being proposed by the Federal Trade Commission (FTC):

  • It would be unlawful for employers to ask employees to submit to non-compete agreements.
  • Where employers had in the past imposed non-compete agreements on their employees, the employers would have to (1) rescind those agreements and (2) provide notice to employees that any non-compete agreements that may have previously signed are now rescinded.
  • The Rule would apply to both employees and independent contractors.
  • Because it is a federal rule, it would supersede any state law or regulation that was in any way inconsistent with the new rule.
  • The rule would apply to other types of agreements, such as non-disclosure or confidentiality agreements that are so broad that they would effectively keep an employee from ever again working in the same field.

In proposing the new rule, the Chair of the Federal Trade Commission, Lina M. Khan, explained why the Commission was seeking to do away with non-compete agreements:

“Non-competes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand. By ending this practice, the FTC’s proposed rule would promote dynamism, innovation, and healthy competition.”

While it is great news that the FTC has proposed this rule, it is important to understand that the rule is not yet in effect and won’t go into effect until 180 days after the FTC makes the rule final. Moreover, we are very concerned that once the rule is made final, the corporate interests in our country will likely bring a challenge to the rule in court, with the litigation almost certainly going all the way up to the Supreme Court. And, of late, the conservative justices on the Supreme Court have made clear their willingness to strike down regulations proposed by federal agencies such as the FTC. 

So, for now, if you are tied down by a non-compete agreement, you will have to rely on the limited restrictions New Jersey state law imposes on non-compete agreements. To discuss whether your New Jersey employer can enforce a non-compete agreement against you, we encourage you to seek a consultation with the lawyers at Schall & Barasch.

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