Federal enforcement authorities seek to outlaw noncompete agreements

The Federal Trade Commission (“FTC”) has proposed to ban noncompete agreements across the board. If adopted, the Rule would prohibit companies from restricting future employment opportunities through employment agreements or other contracts. According to the FTC, these restrictions have significantly suppressed compensation for people who do the work that has generated so much profit for companies over many years. Noncompete agreements also impede innovation and prevent entrepreneurs from starting new companies that a thriving economy needs. The FTC estimates that the noncompete ban, if implemented, would increase wages by approximately $300 billion each year and also would increase employment opportunities for nearly 30 million people.

Importantly, the prohibition against noncompete agreements would apply to both employees and independent contractors. If adopted, the noncompete ban would also invalidate existing noncompete agreements and require companies to inform their employees and independent contractors that noncompete restrictions are now illegal and void. This proposed prohibition provides the latest example of robust Federal enforcement efforts, in this case based on the Executive Order issued by President Biden in July 2021 and the Policy Statement issued by the FTC in November 2021.