The United States Federal Trade Commission (FTC) has released a proposal to ban non-compete clauses in employment contracts.
A non-compete clause seeks to prohibit an employee from competing with a former employer for a certain period of time after the employment is terminated.
The FTC's proposal would prohibit employers from enforcing non-compete clauses with employees or independent contractors. The proposal also would require companies to nullify existing non-compete agreements within six months. The FTC will accept public comments for 60 days before issuing a final rule.
A report by the Treasury Department found that nearly one in five Americans is bound by a non-compete agreement. Non-compete agreements or clauses already are illegal in a few states, while other states have passed legislation limiting the use of the agreements, specifically among low-wage workers.
The FTC proposal would be limited to workers who are natural persons working, whether paid or unpaid, for an employer, as defined by the FTC. The term work includes, without limitation, an employee, individual classified as an independent contractor, extern, intern, volunteer, apprentice, or sole proprietor who provides a service to a client or customer.
The FTC's supplementary materials state that "the definition of non-compete clause would generally not include other types of restrictive covenants—such as non-disclosure agreements (NDAs) and client or customer non-solicitation agreements—because these covenants generally do not prevent a worker from seeking or accepting employment with a person operating a business after the conclusion of the worker's employment with the employer." However, under the definition of "non-compete clause," the proposed rule provides: "such covenants would be considered non-compete clauses where they are so unusually broad in scope that they function as such." (Emphasis added.) Finally, there is a sale of business exemption from the proposed FTC rule.
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