Federal Trade Commission Bans Most Non-Competition Agreements

The Federal Trade Commission (FTC) voted 3-2 to approve a rule on April 23 that bans for-profit businesses from entering into almost any new non-compete agreement and enforcing almost any existing non-compete agreement with all workers. The rule will take effect within approximately four months unless implementation of the final rule is delayed by a temporary restraining order or preliminary injunction.

The definition of “worker” is broad and includes not only employees but also independent contractors, externs, interns, volunteers, apprentices, and sole proprietors (it does not, however, include franchisees in franchisee-franchisor relationships).  The rule defines a non-compete agreement as an agreement that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (a) seeking or accepting work with another person after the end of employment or (b) operating a business after the conclusion of employment.  Non-solicitation covenants, too, could be implicated under the rule because the definition of a non-compete could extend to customer and employee non-solicitation provisions to the extent that they are broad enough to be construed as preventing “a worker from seeking or accepting” employment.

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