Non-Compete Clause Rule
Pursuant to Sections 5 and 6(g) of the Federal Trade Commission Act, the Federal Trade Commission ("Commission") is proposing the Non-Compete Clause Rule. The proposed rule would, among other things, provide that it is an unfair method of competition for an employer to enter into or attempt to enter into a non-compete clause with a worker; to maintain with a worker a non-compete clause; or, under certain circumstances, to represent to a worker that the worker is subject to a non-compete clause.
What this rule actually says
The FTC is proposing to ban non-compete agreements that employers force workers to sign. Under this rule, a company can't make an employee promise not to work for competitors after they leave—and can't even tell an employee they're bound by one if they're not. The rule treats non-competes as unfair business practices that harm workers and competition.
Who it applies to
- If you have employees or contractors: This applies to you. It doesn't matter if you're a solo founder with one hire or a small team.
- If you operate in the US: This is a federal FTC rule, so it covers all US jurisdictions. Some states (like California) already banned non-competes; this rule would make it nationwide.
- If you've used non-competes as employment agreements: The rule targets the *agreements themselves*, not specific AI use cases. Whether building medical scribes, hiring tools, or chatbots doesn't matter—the rule is about employment practices, not product functionality.
- If you've made any representation about non-competes to workers: Even telling someone "you're bound by a non-compete" when you haven't actually written one down could violate the rule under certain circumstances.
- User data scope: This rule doesn't restrict how you use customer or patient data. It's purely about restricting worker mobility.
What founders need to do
- Audit existing agreements (1-2 days): Review any employment contracts, contractor agreements, or offer letters. If they contain non-compete language, flag it for removal.
- Remove non-compete clauses (Same day as audit): Delete any language that restricts where former employees can work after leaving. Non-solicitation and confidentiality clauses are generally still allowed.
- Update hiring templates (1 day): Modify your standard employment agreement template to ensure no non-compete language is included in future hires.
- Brief your team (30 minutes): If you have a co-founder or HR person, make sure they know non-competes are off the table going forward.
- Monitor for finalization (Ongoing, minimal effort): The rule is currently *proposed* as of January 2023. Track FTC announcements to confirm when/if it becomes final. Subscribe to FTC updates or check back quarterly.
Bottom line
Monitor for now, but prepare to act: The rule hasn't been finalized yet, but it's directionally clear. If you have non-competes in your current agreements, remove them before the rule likely becomes final—there's no downside to doing it early, and it prevents legal headaches later.