Noncompete Extinct

The Federal Trade Commission has proposed a blanket ban on noncompete agreements that could radicalize post-termination protections afforded to employers.

Dark figure walking up red staircase to open door
Mark W. Bakker

Mark W. Bakker

March 23, 2023 11:30 PM

The Federal Trade Commission (FTC) created waves by announcing a proposed rule in January that—if adopted and survives legal challenge—would largely prohibit employers from imposing or enforcing noncompete agreements on their workers. In a breathtaking flex of regulatory muscle, the FTC’s unprecedented proposal would create a nationwide standard that would radically modify the current landscape of restrictive covenants and significantly limit the post-termination protections currently available to many employers. Weeks later, this announcement continues to ripple throughout the business community, some of whom will no doubt seek shelter in the courts if the rule is finalized.

The proposed rule boldly follows an executive order issued by President Biden in 2021, which encouraged the FTC to exercise whatever legal authority it has to “curtail the unfair use of noncompete clauses” that “may unfairly limit worker mobility.” The concerns raised by the Biden Administration are not new: use (and abuse) of noncompetes have long created concerns and been sources of controversy. For the most part, however, the regulation of restrictive covenants has been left to the states to regulate, restrict or even outlaw, most commonly through statutory initiatives or judicial scrutiny.

  • The FTC’s proposed rule would largely create a uniform federal standard, resulting in a massive change to noncompete agreement drafting, usage and practice in most states. Generally characterizing noncompete agreements as an “unfair method of competition” that violates the Federal Trade Commission Act, the FTC’s proposed rule is remarkably broad in application and scope:
  • It defines “noncompete clause” as a “contractual term between an employer and a worker that prevents the workers from seeking or accepting employment with a person or operating a business after the conclusion of the worker’s employment with the employer.”
  • Labeling does not matter, and workarounds will not be effective—the FTC’s noncompete definition is functional in nature and prohibits agreement terms that have the “effect” of restricting work for a competitor following the termination of employment (e.g., broadly drafted non-disclosure or non-solicit provisions).
  • The proposed rule not only prohibits employers from entering into or attempting to enter into new noncompete agreements but also a) requires employers to rescind currently existing noncompete agreements and provide notice of the rescission to current and former employees and b) prohibits employers from representing that workers are subject to enforceable noncompete provisions.
  • The proposed rule would cover virtually all workers, including employees, contractors and interns.
  • The single current exception to the proposed rule would be limited to noncompete provisions in the context of the sale of a business for sellers who have “substantial” ownership in the sold business.
  • The FTC’s proposal would create a national, relatively unified standard by superseding and preempting any inconsistent state statute, regulation or interpretation.
The proposed rule boldly follows an executive order issued by President Biden in 2021, which encouraged the FTC to exercise whatever legal authority it has to ‘curtail the unfair use of noncompete clauses’ that ‘may unfairly limit worker mobility.’”

The FTC’s proposed rule is an unprecedented expansion of the Biden Administration’s stated goal to target unfair methods of competition and faces significant hurdles before it can be promulgated or enforced. First, the proposed rule will go through the typical regulatory rulemaking process and is now subject to a 60-day comment period before it is finalized. The FTC held a virtual public forum in February to garner support for the proposed rule during the comment period by giving workers an opportunity to share their experiences with noncompetes. The comment period ended March 20, 2023. Not only could the proposed rule be modified before it is finalized, but employers are expected to have up to 180 days to comply with the final rule.

Second, the final rule, if adopted, will undoubtedly be subject to immediate legal challenges. The United States Chamber of Commerce has already mobilized resources against what it termed a “blatantly unlawful rule,” explaining that “Congress has never delegated the FTC anything close to the authority it would need to promulgate such a competition rule.” Like other recent far-reaching agency proposals and orders that have been legally challenged (e.g., OSHA’s rule regarding mandatory COVID-19 vaccinations/testing), concerned employers facing a unique administrative agency rule may have to wait for quite some time before the courts bring clarity to what is otherwise going to be a period of significant uncertainty for those who have relied on and/or used noncompetition agreements in the past.

The proposed rule has not only stirred up controversy amongst some in the business community but has also exposed bitter divisions within the FTC. Christine Wilson, a Republican appointee to the FTC, publicly announced her intention to resign in February, citing the FTC’s “disregard for the rule of law and due process.” Her resignation specifically noted that the proposed rule far exceeds the authority granted to the FTC by Congress.

Even if the proposed rule is withdrawn or a final rule is struck down, the environment is ripe for significant state or federal action on curbing or even prohibiting certain noncompete provisions. At least one bill—the Workforce Mobility Act—has garnered bipartisan support in both the United States Senate and House of Representatives. Proponents of this bill expressed the same concerns as those raised by the FTC and, like the proposed FTC rule, this bill would create a similar federal, nationwide standard governing and substantially eliminating the use of noncompete provisions in most contexts.

The FTC announcement also follows recent statutory action in several states (e.g., Colorado, Massachusetts and Washington, D.C.) that have significantly curbed the use of noncompete agreements, primarily banning businesses from requiring noncompetes for lower-income or hourly workers and creating specific requirements before noncompetes can be valid. Regardless of what happens with the FTC proposal, the publicity surrounding the announcement is expected to spur significant legislative activity in several states to further regulate or restrict the impact of noncompete agreements. Multistate employers who use noncompete agreements are going to face inevitable and evolving legal challenges drafting and enforcing these restrictive covenants.

The FTC’s proposed rule on noncompetes has amplified an area of the law that has long been subject to change and evolving standards. In the meantime, employers are counseled to take familiar steps: review existing agreements, consider what alternative contract provisions should be used in lieu of noncompetition provisions and be prepared to implement and review existing and future agreements to be compliant with applicable law. A cautious employer may want to reconsider offering additional consideration or bonuses to get employees to sign new restrictive covenants because the contemplated ban under the proposed FTC rule may not warrant a significant investment in getting new noncompete agreements executed. Otherwise, employers should shore up the protection of their trade secrets and confidential information, knowing that other restrictive covenants may not be available to them. Knowing now that key employees can work for competitors in the future may inform some employers to take additional steps to protect sensitive and confidential business information.

Mark Bakker is a recognized employment law litigator and trusted legal advisor in employment and other business-related matters. He represents clients in federal and state courts throughout North and South Carolina, arbitration panels, before the Equal Employment Opportunity Commission, the South Carolina Human Affairs Commission and other state and federal agencies. He provides daily proactive advice and counseling on a variety of human resources issues to employers, including established corporations, HR consulting firms, management teams, entrepreneurs, start-up companies and staffing companies.

Headline Image: Adobestock/jozefmicic

Related Articles

Withstand the Ban

by Jeffrey A. Calabrese and Kirby Black

With the recent Federal Trade Commission’s announcement proposing a complete ban on noncompete agreements, we offer advice to companies moving forward.

Figure out of frame signing a non-descript contract


Federal Trade Commission’s Proposal Sets Noncompete World on Fire: Justified Fears?

by David J. Carr

A recent FTC proposed rule that would bar noncompete agreements could have major impacts against the working class.

Blue maze walls and bright circles with small outline of person walking through

An Employer’s Guidebook to Responding to Online Harassment

by Belle Harris and Brent Siler

Navigating online defamation against your business requires strategic responses. Two employment lawyers guide how to leverage contracts, understand social media limitations and the risks of legal action.

Image of person pushing giant phone with mouth and words coming out


The Wagner Law Group: ERISA and Employment Law

by The Wagner Law Group

For more than 25 years, The Wagner Law Group has combined the personalized attention and reasonable rates of small law firms with the specialization and sophistication of large firms to tackle all of their clients' ERISA and Employment Law needs.

Female Attorney in a Gray Suit Presenting to a Female Judge


Gust Rosenfeld P.L.C. on Protecting Arizona Employers

by Justin Smulison

Gust Rosenfeld attorney Robert D. Haws discusses emerging trends in employment litigation and how the firm’s Employment and Education Law practice groups have protected clients in and out of Arizona’s courtrooms.

Gust Rosenfeld P.L.C. on Protecting Arizona Employers


Businesses Must Prepare for the New Department of Labor Independent Contractor Rule

by Kirby Black and Steven T. Clark

Two employment law lawyers explain how a new DOL rule making it more likely workers will be classified as employees, rather than independent contractors, has caused legal challenges and prompted businesses to reassess worker status and policies.

Block with outline of person slightly out of place from other blocks


The Long, Short, Thick and Thin of It

by Avrohom Gefen

“Appearance discrimination” based on employees’ height and weight is the latest hot-button issue in employment law. Here’s a guide to avoid discrimination.

Woman stands in front of mirror holding suit jacket

Empowering Employers

by Alexandra Sarrine and Elizabeth L.A. Garvish

Ten things that you need to know before you file a labor certification application with the DOL.

People walking on a maze of twisting roads against yellow screen

Changes to the New Form I-9 and Verification Process

by Nia Doaks

Best Lawyers: Ones to Watch® in America honoree Nia Doaks of Constangy, Brooks, Smith & Prophete offers guidance in navigating new Form I-9 changes.

I-9 Immigration Form with pen

Employers Are Budding Heads on Marijuana in the Workplace

by M. Tae Phillips and Melanie C. Cormier

As employment lawyers, we receive many questions from employers navigating marijuana legalization. Below, we answer the top three most asked questions.

Statue of Liberty holding a marijuana joint

Rights and Wrongs

by Shannon Pierce

Antidiscrimination enforcement agencies, both federal and state, are likely going to be highly active in the next five years. Are Nevada businesses ready?

Faces of women overlapping in multi-color

Brace for Impact

by Ray Young, Jr. and Scott Hetrick

The 2021 independent contractor rule might have major impacts on employers and upend compliance issues, especially as the DOL’s definition of an independent contractor is about to change.

Silhouetted figure holding the hands of a clock

Staunch Competition

by Andrea E. Nieto, Catherine H. Molloy and Jennifer W. Corinis

On the other side of the pandemic, after record numbers of employee resignation, protecting trade secrets is both challenging and being challenged.

Protecting Trade Secrets During Period of Res

Legal Trends in the Modern Workplace

by Emma R. Schuering and Meghan H. Hanson

Employees are reevaluating their jobs and the workforce, including issues like pay equity, forced arbitration, paid time off, discrimination and other such policies as they continue to navigate a post-pandemic work life.

Legal Trends In the Workplace Post-Pandemic

Compelled to Compete

by Ashish Mahendru

Courts and legislatures—and now the White House—are taking an increasingly dim view of noncompete employment agreements, a development the pandemic has quickened. What can employers do to protect their confidential information?

Protection for Employers Beyond Noncompetes


From Allegations to Action: Navigating Legal Options for Sexual Abuse Survivors

by Wagners Law Firm

All too often, instances of sexual abuse occur within an institutional environment. Read more to find out what to do in cases of sexual and institutional abuse.

Animated woman sits with her eyes closed

Trending Articles

Presenting The Best Lawyers in Australia™ 2025

by Best Lawyers

Best Lawyers is proud to present The Best Lawyers in Australia for 2025, marking the 17th consecutive year of Best Lawyers awards in Australia.

Australia flag over outline of country

How To Find A Pro Bono Lawyer

by Best Lawyers

Best Lawyers dives into the vital role pro bono lawyers play in ensuring access to justice for all and the transformative impact they have on communities.

Hands joined around a table with phone, paper, pen and glasses

How Palworld Is Testing the Limits of Nintendo’s Legal Power

by Gregory Sirico

Many are calling the new game Palworld “Pokémon GO with guns,” noting the games striking similarities. Experts speculate how Nintendo could take legal action.

Animated figures with guns stand on top of creatures

Announcing The Best Lawyers in New Zealand™ 2025 Awards

by Best Lawyers

Best Lawyers is announcing the 16th edition of The Best Lawyers in New Zealand for 2025, including individual Best Lawyers and "Lawyer of the Year" awards.

New Zealand flag over image of country outline

Announcing The Best Lawyers in Japan™ 2025

by Best Lawyers

For a milestone 15th edition, Best Lawyers is proud to announce The Best Lawyers in Japan.

Japan flag over outline of country

The Best Lawyers in Singapore™ 2025 Edition

by Best Lawyers

For 2025, Best Lawyers presents the most esteemed awards for lawyers and law firms in Singapore.

Singapore flag over outline of country

How Much Is a Lawyer Consultation Fee?

by Best Lawyers

Best Lawyers breaks down the key differences between consultation and retainer fees when hiring an attorney, a crucial first step in the legal process.

Client consulting with lawyer wearing a suit

Presenting the 2024 Best Lawyers Employment and Workers’ Compensation Legal Guide

by Best Lawyers

The 2024 Best Lawyers Employment and Workers' Compensation Legal Guide provides exclusive access to all Best Lawyers awards in related practice areas. Read below and explore the legal guide.

Illustration of several men and women in shades of orange and teal

Things to Do Before a Car Accident Happens to You

by Ellie Shaffer

In a car accident, certain things are beyond the point of no return, while some are well within an individual's control. Here's how to stay legally prepared.

Car dashcam recording street ahead

Combating Nuclear Verdicts: Empirically Supported Strategies to Deflate the Effects of Anchoring Bias

by Sloan L. Abernathy

Sometimes a verdict can be the difference between amicability and nuclear level developments. But what is anchoring bias and how can strategy combat this?

Lawyer speaking in courtroom with crowd and judge in the foreground

Attacked From All Sides: What Is Happening in the World of Restrictive Covenants?

by Christine Bestor Townsend

One employment lawyer explains how companies can navigate challenges of federal and state governmental scrutiny on restrictive covenant agreements.

Illustration of two men pulling on string with blue door between them

The Push and Pitfalls of New York’s Attempt to Expand Wrongful Death Recovery

by Elizabeth M. Midgley and V. Christopher Potenza

The New York State Legislature recently went about updating certain wrongful death provisions and how they can be carried out in the future. Here's the latest.

Red tape blocking off a section of street

Georgia Proposes Law Requiring Parental Consent for Minors on Social Media

by Gregory Sirico

With data collection on the rise, Georgia lawmakers are currently petitioning for Senate Bill 351, which would require a user's age before social media use.

Teenager with hood on using phone as notifications pop up

Colorado Attorney General Calls For Cannabis Reclassification

by Gregory Sirico

In this article, Best Lawyers highlights a recent call to action by the Colorado state attorney general, requesting a full drug reclassification of cannabis.

Cannabis buds sitting on a checkerboard tabletop

6 Ways a Lawyer Can Help You With Your Medical Malpractice Claim

by Adam Malone

If you believe you have a medical malpractice claim, contact an experienced medical malpractice lawyer. Read on to learn how they can help with your claim.

Doctor in white lab coat showing x-ray to patient in blue scrubs

An Employer’s Guidebook to Responding to Online Harassment

by Belle Harris and Brent Siler

Navigating online defamation against your business requires strategic responses. Two employment lawyers guide how to leverage contracts, understand social media limitations and the risks of legal action.

Image of person pushing giant phone with mouth and words coming out