The Federal Trade Commission (FTC) has issued a proposed new rule that would ban noncompete agreements nationwide. In its proposal, the FTC states that noncompetes are an unfair method of competition, and thus violate the Federal Trade Commission Act. The proposed rule can be found here:
Under the proposal, employers could not ask paid or unpaid employees, independent contractors, interns, volunteers, or apprentices to sign a noncompete agreement. The rule would apply retroactively, so employers would be required to give notice to employees and former employees that existing noncompete agreements have been rescinded within 45 days of the rule's implementation. It would also apply even in situations involving high-level corporate executives or other settings in which there would clearly be a valid business reason for using a noncompete agreement.
As we have discussed in prior blogs, Virginia already has restrictions on noncompete agreements for “low wage” employees. See Va. Code § 40.1-28.7:8. Covenants not to compete prohibited as to low-wage employees; civil penalty (virginia.gov). The Virginia law, however, did not take effect until July 1, 2020 and is not retroactive, unlike this new federal proposal.
Many commentators are predicting that the rule will be struck down in court if it is finalized in its current form. Some experts believe that the FTC has exceeded its authority in proposing this new rule.
The public and employers can submit comments on the proposal within 60 days after the Federal Register publishes the proposed rule. The rule would take effect 180 days after the final version is published. Litigation is likely if the rule is finalized in its present form. We will update you with developments.
John Falcone and Luke Malloy handle employment law matters at PLDR Law. Feel free to contact us if you have questions about this matter.