Law update: Is the FTC Going to Ban Non-Competes, and What Does That Mean For Me?

When receiving a new employment agreement, one of the key clauses that is negotiated and heavily discussed is the non-compete clause. A non-compete is a type of restrictive covenant, meaning it restricts what you can do post-employment. It outlines an agreement whereby the employee agrees not to compete with his or her employer once the employment relationship ends.

Typically, this is seen as a restriction on an employee’s ability to work in a geographic area for a certain time period with a competitor. They can be hard to negotiate and may have long-term consequences for employees.

Who is trying to change the legality of non-compete agreements?

Historically, it was individual state law that was governing how enforceable a non-compete is. As of the time of this writing, non-competition clauses have been banned outright in California, North Dakota, Oklahoma, and Washington, D.C.

However, there have been many individuals and organizations advocating for the banning of these clauses within employment agreements. This includes democratic lawmakers, who have introduced legislation to ban or limit non-compete clauses, such as Senator Elizabeth Warren. Labor advocacy groups also play a role in urging the ban, such the National Employment Law Project and Economic Policy Institute. Prominent individuals, typically business leaders, have spoken out against non-competes in recent years – arguing that they harm workers and stifle innovation.

The advocacy for this change took a turn when President Biden issued an executive order (link: in July of 2021, urging the Federal Trade Commission (FTC) to ban or limit non-competes.

He directed the FTC to to create rules that would make it illegal for employers to use noncompete clauses to unfairly limit worker mobility, to ban or limit noncompete clauses that are unnecessary for protecting legitimate business interests, and to increase transparency and promote competition in labor markets. This was the beginning in a shift of federal policy, as non-competes were seen as a matter of state law prior to the issuance of the executive order.

It is important to note that the FTC does not have the power to outright ban noncompete clauses since they are primarily governed by state law. However, the agency could potentially use its regulatory power to limit the use of these clauses, especially for low-wage workers or in industries where these contracts are considered unnecessary. The FTC is currently in the process of gathering input from stakeholders and the public as it considers potential rulemaking related to noncompete agreements.

What effect would the proposed FTC rule on non-competes be?

If and when the FTC implements a rule to outright ban noncompete agreements, it would have a significant impact on the way many employers do their business. Noncompete agreements are currently used by many employers as a way to prevent employees from leaving and working for a competitor, usually in the same field or industry. These agreements can range from relatively mild restrictions to outright bans on working for any competitor for a certain period of time following employment termination.

If the FTC were to ban noncompete agreements, employers would no longer be able to use them to restrict employee mobility. Employees would be free to leave their jobs and seek employment elsewhere, even if that meant working for a direct competitor. This would give workers more flexibility and potentially increase competition in labor markets.

Because of the great effects it would have, it is important to note that such a ban would likely face legal challenges from employers and could have negative consequences for certain industries. For example, noncompete agreements are common in industries such as technology, where companies rely heavily on intellectual property and innovation. The loss of these agreements could make it harder for these companies to protect their proprietary information and maintain their competitive advantage. Any ban would need to balance the rights of workers with the legitimate business interests of employers.

If the proposed rule is implemented, it is unknown whether it would have any effect on contracts that existed before. However, it is unlikely that the law would be written and implemented retroactively, meaning that it may be written to only apply to contracts executed moving forward.

What is the process for the FTC to implement its proposed rule?

For the FTC to implement its proposed rule to ban or limit non-competes, it would involve a rule-making procedure, which typically includes the following steps:

  1. Notice of Proposed Rulemaking: The FTC would publish a notice in the Federal Register outlining the proposed rule to ban noncompete agreements. This notice would include the legal basis for the proposed rule, potential impacts, and an opportunity for public comment.
  2. Public Comment Period: Once the notice has been published, there would be a public comment period, typically lasting 30 to 60 days. During this time, interested parties could submit written comments or attend public hearings to express their views on the proposed rule.
  3. Review of Comments: The FTC would then review and consider the comments received during the public comment period to help shape the final rule.
  4. Final Rule: After considering the public comments, the FTC would issue a final rule. This rule would go through a review process by the Office of Management and Budget (OMB) before being published in the Federal Register.
  5. Enforcement: Once the final rule is published, the FTC would work to enforce the new ban on noncompete agreements; this may be through legal action against employers that violate the rule.

It is important to note that this process can take several months to a year or more to complete, depending on the complexity of the rule and the amount of public feedback received. Additionally, any new rule could face legal challenges from affected employers or other stakeholders. Therefore, it could be some time before the FTC is able to take any definitive action.

With the way the law stands today, it is important that you review and negotiate your employment agreement’s non-compete.

Contact an experienced Michigan contract review and negotiation attorney today.