The Federal Trade Commission announced a proposed federal regulation that would outlaw contractual terms between an employer and a worker that "prevent the worker from seeking or accepting employment with a person, or operating a business, at the conclusion of the workers employment." The proposed rule is intended to completely ban non-compete agreements nationwide for all workers. The FTC argues that any restriction of a worker's ability to change jobs is anti-competitive and forces workers to become unemployed or accept lower-paying jobs.
Although four states currently ban non-compete agreements, and most states have narrow restrictions on the terms and conditions of enforceable non-compete agreements, the proposed rule would outlaw any agreement that "has the effect" of restricting subsequent employment, including broad non-disclosure of confidential information agreements and agreements requiring repayment of training expenses.
Prior to announcing the proposed rule, the FTC announced settlements with three corporations under which the companies would rescind all existing non-compete agreements and cease entering into non-competes with their workers.
The rule is open for public comment for 60 days. The rule will be highly controversial. If adopted, the rule will likely be challenged by legal actions based on the "major questions doctrine" recently reaffirmed by the U.S. Supreme Court in West Virginia v. EPA. Under the major questions doctrine, a federal agency lacks the authority to issue broad, unprecedented regulations without "clear Congressional authority."
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