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FTC's Proposed Rule and the Current State of Non-Competes
On behalf of Margules Law Group, P.A. | 11/02/2023 | Firm News

According to the Federal Trade Commission (FTC), one in five American workers are bound by a non-compete agreement which prohibits them from pursuing more favorable employment opportunities. A non-compete agreement or clause, in its most basic form, is an agreement between an employer and employee where the employee aggress to not enter into competition with the employer once the employment period is over. These agreements normally restrict a certain geographic area for a specific period of time.

On January 5, 2023, the FC proposed to do away with such agreements by preventing employers into entering into non-competes with their employees and requiring employers to rescind any existing non-compete clauses. The Commission estimates that the proposed rule would increase American workers’ earning potentials between $250 billion and $296 billion. Without the restrictive clause, American workers would be free to start their own business or pursue other employment opportunities that compete with their previous employees. For example, under the proposed rule, an individual that graduated from college with a marketing degree and works for a marketing company would be permitted to start his own marketing agency that compete with his former employer. Under the current rule, that individual, who only possesses experience in the marketing field, would likely be forced to choose between relocating to a different area or selecting a new profession.

President Biden signed Executive Order 14036 on July 9, 2021 that aimed to promote competition in the American economy. Within the Order, the President called on the FTC to, among other things, ban or limit non-compete agreements that are currently impacting between 36 to 60 million workers in the United States. Since the Executive Order was signed, the FTC promulgated the above-referenced rule and many states have taken action by enacting laws that ban or restrict non-compete agreements. As of September 2023, five (5) states outright ban nearly all such agreements: California, Colorado, Minnesota, North Dakota and Oklahoma. These states have extremely narrow laws that create an exception in certain cases such as sale of businesses. Additionally, more than 20 states have enacted broader legislation, such as laws banning all no-poach agreements and all traditional non-compete agreements with employees that earn less than $100,000 annually.

When it was first proposed, many expected the FTC’s rule to move quickly to a vote once the notice-and-comment period ended in March 2023. However, due to the overwhelming number of public comments, nearly 27,000 of them, the voting process has hit a speed bump as the agency cautiously and carefully reviews the responses.

It is now expected that voting could take place sometime in early 2024. Until that time and any national rule is finalized, it will be imperative to monitor individual state’s legislature pertaining to non-compete agreements.

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