Recent actions by federal and state regulators may give more power to employees to pursue better employment opportunities. The Federal Trade Commission (FTC) on Jan. 5 proposed a rule that would ban employers from imposing non-compete agreements with their workers. Meanwhile, the New York attorney general settled another allegation of “no-poach” agreements with a title insurance company.

The FTC is seeking public comment on the proposed rule, which is based on a preliminary finding that non-competes constitute “an unfair method of competition” in violation of Section 5 of the Federal Trade Commission Act.

Specifically, the FTC’s proposed rule would make it illegal for an employer to:

• Enter into or attempt to enter into a non-compete agreement with a worker.
• Maintain a non-compete agreement with a worker.
• Represent to a worker, under certain circumstances, that the worker is subject to a non-compete agreement.

“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said FTC Chair Lina M. Khan. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation and healthy competition.”

The proposed rule would apply to independent contractors and anyone who works for an employer, whether paid or unpaid. It would also require employers to rescind existing non-competes and actively inform workers they are no longer in effect.

The proposed rule would generally not apply to other types of employment restrictions, like non-disclosure agreements. However, other types of employment restrictions could be subject to the rule if they are so broad in scope that they function as non-competes.

In July 2021, President Biden issued an Executive Order titled “Promoting Competition in the American Economy,” directing the FTC to exercise its “statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of noncompete clauses and other clauses or agreements that may unfairly limit worker mobility.”

The FTC said that non-competes are “a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses.”

The FTC’s proposed rule would require employers to rescind all existing non-compete provisions within 180 days of publication of the final rule, and to provide current and former employees notice of the rescission. If employers comply with these two requirements, the rule would provide a safe harbor from enforcement. In addition, the proposed rule would exempt from its scope certain non-competes entered in connection with the sale of businesses. This exception also applies under California law, recognizing the need to protect the goodwill of a business.