The rule would provide that noncompete clauses are an unfair method of competition and as a result, the rule would ban employers from entering noncompete clauses with their employees and workers (defined by the FTC to include independent contractors and others). The rule would require employers to rescind existing noncompete clauses with workers and actively inform their employees that the contracts are no longer in effect. The rule would include a limited exception for non-compete clauses between the seller and buyer of a business. This exception would only be available where the party restricted by the non-compete clause is an owner, member, or partner holding at least a 25% ownership interest in a business entity.

The public comment period will last at least 60 days, and the current deadline to comment is now March 20th. It is possible the comment period may be extended by the FTC.

Nearly 4,000 comments have been submitted to date.

After the public comment ends, there is a mandatory 180-day notice period after the final version of the rule addressing comments received is issued.

The rule would be likely subject to significant legal challenges, particularly with the Supreme Court’s skepticism of federal agencies’ use of expanded authority without the clear direction of Congress. Litigation to enjoin the rule could be filed after the final version of the rule is issued, but before it takes effect, during the 180-day notice period.

The 60-day comment period provides an important opportunity for stakeholders to voice concerns about the FTC’s proposed rule. We recommend that businesses consult with their legal counsel about the proposed impact if this rule goes into effect, as well as voicing their opinion to this proposed rule to ensure that they are heard. Please contact a Seyfarth Trade Secrets lawyer if you are interested in submitting a comment to the FTC.