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FTC Announces Rule to Ban Non-compete Clauses

In January, a new rule was proposed by the Federal Trade Commission (FTC) banning non-compete clauses in employment contracts. This new rule aims to protect workers from unfair restrictions on their ability to seek new employment opportunities and promote healthy competition in the marketplace.

At Leeson & Leeson, our Pennsylvania business and corporate law attorneys stay current on these rapidly developing legal issues to provide our clients with high-quality and relevant legal advice.

What are Non-compete Clauses?

Non-compete clauses are contractual provisions that prohibit employees from working for a competing company or starting their own business in the same industry for a certain period of time after leaving their current employer. While these clauses may be intended to protect a company's intellectual property or trade secrets, they often create barriers to workers' mobility. They can harm competition by preventing new businesses from entering the market.

What is the New FTC Rule?

Presently, an estimated 18% of workers in the United States are covered by their employer's non-compete clauses. Therefore, the FTC's proposed rule would impact millions of workers nationwide. The new rule would prohibit the use of non-compete clauses for most workers, including independent contractors.

However, there are exceptions for highly paid executives and those with access to sensitive information. The rule would also require employers to disclose the use of non-compete clauses to workers before they accept a job offer. Specifically, this new rule would make it illegal for employers to:

  • Enter into or try to attempt to enter into a non-compete with an employee.

  • Maintain a non-compete with an employee.

  • Represent to an employee, under certain circumstances, that the employee is vulnerable to a non-compete agreement.

The proposed rule reflects a growing concern about the negative impact of non-compete clauses on workers and the broader economy. Recently, a study by the Economic Policy Institute found that approximately one in five U.S. workers are subject to non-compete clauses, including many low-wage and entry-level workers. These clauses can limit workers' job options and depress wages, making it harder for them to advance in their careers and contribute to economic growth.

The proposed rule has received support from labor advocates and business groups alike. The AFL-CIO, the largest federation of unions in the United States, has praised the rule as a "positive step toward ensuring that all workers can enjoy the freedom to seek employment opportunities that best suit their skills and experience." The U.S. Chamber of Commerce, a business lobbying group, has also expressed support for the rule, noting that it would "help level the playing field for small businesses and startups."

Contact Leeson & Leeson Today

Leeson & Leeson provides services for business, corporate, and non-profit businesses across Eastern Pennsylvania. We stay up to date on these developing legal issues, such as this new FTC rule, while also understanding the foundations of Business and Corporate Law issues.

Reach out today for a consultation with a Bethlehem business and corporate law attorney at 610-691-3320 if you have questions about this new FTC rule or any other business or corporate legal matter.


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