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FTC Proposes Rule to Ban Non-Compete Clauses

FTC Proposes Rule to Ban Non-Compete Clauses

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On January 5, 2023, the Federal Trade Commission (FTC) issued a Notice of Proposed Rulemaking (NPRM) to ban the use of non-compete agreements with workers. In proposing the rule, the Federal Trade Commission exercised its broad authority in accordance with Section 5 of the Federal Trade Commission Act, which prohibits unfair methods of competition.

Upon finalization, the rule would apply to all industries and job levels, including employees, independent contractors, and unpaid workers. According to a fact sheet published by the FTC, this measure could increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans. Click here to read the full announcement.

The NPRM proposes a retroactive ban on non-compete agreements and would require employers to rescind any existing non-compete agreements within 180 days of publication of the final rule. Employers must also provide individual notice to employees within 45 days of rescinding a non-compete clause.

As a point of interest, the rule does not affect non-solicitation or non-disclosure agreements. In order to determine whether a clause meets the definition, the FTC proposes a functional test, meaning that a non-disclosure or non-solicitation covenant that effectively bars an employee from seeking employment in their chosen industry could be considered a non-compete agreement. Furthermore, non-compete clauses requiring the employee to pay liquidated damages to the employer in the event of competition are also prohibited.

The FTC will accept public comments on the proposed rule through March 10, 2023. Nearly 6,000 comments have been submitted online as of January 25. HCAF will submit comments on behalf of the Florida provider community, but strongly encourages providers to weigh in on the proposal's impact.

Click here to submit a comment online.

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