FTC to Propose Rules Restricting the Use of Noncompete Clauses by Companies

FTC Chair Lina Khan confirmed this week that the Commission will be pursuing a proposed rule to restrict the use of noncompete agreements in employment contracts. In addition to regulation, Ms. Khan said the Commission plans to target the use of noncompete clauses in individual cases through enforcement actions. Chair Khan’s statements are in response to President Biden’s directive last year to the FTC to consider curtailing the use of noncompete clauses, which he believes restricts employee mobility and competition.  

Ms. Khan said the FTC is considering drafting a regulation targeting the use of noncompete provisions which could be adopted via a rarely used FTC authority, a section of the 1914 FTC Act, which says “unfair methods of competition in or affecting commerce” are illegal. 

For most of the past year, the FTC has been divided 2-2 between Democrats and Republicans. A third Democrat took office last month. With a majority Chair Khan will now pursue Democratic priorities such as limiting and or restricting noncompete clauses. 

Last year, the Center, with input from members, submitted comments to the FTC on the legitimate business use of noncompete clauses, including for executives and employees with access to proprietary and sensitive information. In addition, the Center staff has been meeting with policymakers to inform them on the legitimate business use of such agreements.  

A proposed rule promulgated by the FTC will likely be subject to the notice and comment period and be published in the Federal Register. Once a rule is proposed the Center will solicit member input to inform our comments.  In the meantime, the Center has reached out to the FTC Commissioners to discuss this issue in greater detail and will continue to advocate against proposals to limit and or ban noncompete clauses, especially for executives.