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January 20, 2023

FTC Proposes Rule to Ban Non-Compete Clauses

On January 5, 2023, the FTC proposed a sweeping rule that, if enacted as initially drafted, will prohibit employers from entering into or enforcing existing post-employment non-competition agreements with employees.  Specifically, an employer may not: (1) enter into or attempt to enter into a non-compete clause with an employee; (2) maintain a non-compete clause with an employee; or (3) represent to an employee that the employee is subject to a non-compete clause where the employer has no good faith basis to believe that the employee is subject to an enforceable non-compete clause.  This proposed rule responds to President Biden’s July 9, 2021,  “Executive Order Promoting Competition in the American Economy,” which encouraged the FTC to examine the unfair use of non-compete clauses.  The FTC’s proposed rule is based on the agency’s finding that such agreements unfairly prevent competition in violation of Section 5 of the Federal Trade Commission Act.  While not addressed in the proposed rule, the FTC suggests that nonprofits, including nonprofit hospitals, might not be subject to the rule. The public comment deadline is March 10, 2023.

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