Clifford Chance

FTC Proposes Rule to Prohibit Noncompete Clauses

January 9, 2023

On January 5, 2023, the Federal Trade Commission published a Notice of Proposed Rulemaking ("Proposed Rule") that would prohibit employers from entering into or imposing noncompete clauses on their employees. The lengthy Proposed Rule comes one day after the FTC obtained three settlements from companies over their use of noncompetes, arguing these clauses constitute an unfair method of competition under Section 5 of the FTC Act ("Section 5"). The FTC voted 3-1 to publish the Proposed Rule with Commissioner Wilson dissenting. The Proposed Rule continues the FTC's focus on labor issues; however, it runs counter to decades of court decisions where noncompetes have been evaluated on a case-by-case basis, considering the reasonableness of the clause's duration, geographic scope, and business justifications.

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