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FTC Poised to Finalize Noncompete Rule

FTC Poised to Finalize Noncompete Rule
Monday, April 22, 2024

In January 2023, the FTC announced a proposed rule that would ban employers from imposing noncompetes on employees. After collecting over 26,000 public comments during the 90-day notice and comment period, the FTC announced a special Open Commission Meeting set to take place on Tuesday, April 23, 2024 to discuss the implications of the proposed rule. While closed to public comment, the public is still able to view the meeting via webcast. See Hunton Andrews Kurth LLP’s original Client Alert when the proposed rule was first announced.

The proposed rule came as a result of the FTC’s concern regarding restrictive labor practices—a concern which, according to the FTC, could increase wages by nearly $300 billion per year if addressed. The rule would make it illegal for an employer to: (1) enter into or attempt to enter into a noncompete with a worker; (2) maintain a noncompete with a worker; or (3) represent to a worker, under certain circumstances, that the worker is subject to a noncompete. The FTC’s Notice of Proposed Rulemaking explained that “noncompetes are a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses.” Notably, the rule would apply to individual contractors, and it would have a retroactive application: employers would be required to rescind existing noncompetes and inform the employee they are no longer bound by the agreement.

The April 23 Open Commission Meeting will begin with a vote to determine whether the Commission will authorize disclosure of the proposed final rule to the public. Many submitted comments stating the proposed rule was overbroad and should exempt certain highly skilled and highly compensated employees. If the Commission votes to disclose the proposed final rule, staff from the FTC’s Office of Policy Planning will then give a presentation on the terms of the final rule under consideration, after which the Commission will vote on whether to issue the final rule. The final rule will detail the substantive changes to be implemented, and it will offer guidance on how long employers have to ensure compliance. Hunton’s lawyers will be watching this process as it unfolds and are prepared to help employers navigate the territory of the new rule should the final rule be promulgated. Note that the U.S. Chamber of Commerce has already publicly stated that it will likely challenge the FTC’s final rule on several grounds including whether the FTC has the authority to promulgate such rulemaking, and thus implementation of the final rule is likely to get delayed pending resolution of litigation.

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