Over the summer, Federal Trade Commission (FTC) Chair Lina Khan announced that the FTC was considering a new regulation targeting employee non-competes and that the agency would also use enforcement actions to target them. The FTC just followed through and in the span of 24 hours, took two unprecedented steps: On Wednesday, Jan. 4, 2023, the FTC brought its first-ever enforcement actions against the use of non-competes, announcing settlements with three companies over allegations that their respective non-compete restrictions were unfair methods of competition in violation of Section 5 of the FTC Act. The FTC followed up the morning of Jan. 5 by announcing a Notice of Proposed Rulemaking that would render most employee non-compete provisions “unfair methods of competition” and therefore unlawful under Section 5 of the FTC Act.
Until the FTC enforcement actions, the enforceability of employee restrictive covenants and non-competes was governed by applicable state law. These enforcement actions and the proposed rule are likely to be controversial because they are moving into an area that has traditionally been left to the states and because the method represents an expansive exercise of the FTC’s “unfair methods of competition” enforcement authority, which was previewed in a November policy statement.