UNITED STATES OF AMERICA 

Federal Trade Commission 

WASHINGTON, D.C. 20580 

Office of the Chair 

Statement of Chair Lina M. Khan 

Joined by Commissioner Rebecca Kelly Slaughter and 

Commissioner Alvaro M. Bedoya 

Regarding the Notice of Proposed Rulemaking 

to Restrict Employers’ Use of Noncompete Clauses

Commission File No. P201200 

January 5, 2023 

Today the Federal Trade Commission is proposing a rule that would prohibit businesses 

from using noncompete clauses in contracts with workers. Noncompete clauses generally restrict 

a company’s workers from working for—or launching—a competitor for a period of time even 

after they have stopped working for that company. Researchers estimate that about one in five 

American workers is bound by a noncompete clause. 

By design, noncompetes often close off a worker’s most natural alternative employment 

options: jobs in the same geographic area and professional field. These restrictions can 

undermine core economic liberties, burdening Americans’ ability to freely switch jobs.1 

A recent Commission action illustrates the real-life stakes: Prudential, a security 

company in Michigan, enforced noncompetes against its workers, including security guards 

earning near-minimum wage.2 These noncompetes included a $100,000 liquidated damages 

clause. On multiple occasions, Prudential sued former employees who left for competitors 

offering higher wages. In one case, Prudential successfully pressured a competitor to fire one of 

those new hires. Media reports document countless other instances in which Americans who 

wish to change jobs—be it to pursue a better opportunity, to escape harassment, or to express 

disagreement with new workplace policies—are trapped in place by noncompete clauses. 

Notably, the aggregate economic impact of noncompete clauses goes beyond any 

individual worker. Initiatives by several states to limit the use of noncompetes has given 

researchers the opportunity to closely study their effects. The Notice of Proposed Rulemaking 

(NPRM) published today carefully reviews the empirical evidence available to date and 

highlights several key findings.3 

1 Pollock v. Williams, 322 U.S. 4, 17–18 (1944) (describing the “right to change employers” as a critical “defense 

against oppressive hours, pay, working conditions, or treatment”). 2 Complaint, In re Prudential Security, Inc., File No. 221-0026 (Jan. 4, 2022), 

https://www.ftc.gov/system/files/ftc_gov/pdf/2210026prudentialsecuritycomplaint.pdf; see Press Release, Fed. 

Trade Comm’n, FTC Cracks Down on Companies That Impose Harmful Noncompete Restrictions on Thousands of 

Workers (Jan. 4, 2023), https://www.ftc.gov/news-events/news/press-releases/2023/01/ftc-cracks-down-companiesimpose-harmful-noncompete-restrictions-thousands-workers. 3 Notice of Proposed Rulemaking for Non-Compete Clause Rule (“NPRM”), Part II.B (Jan. 5, 2023). 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First, noncompete clauses reduce competition in labor markets, suppressing earnings and 

opportunity even for workers who are not directly subject to a noncompete. When workers 

subject to noncompete clauses are blocked from switching to jobs in which they would be better 

paid and more productive, unconstrained workers in that market are simultaneously denied the 

opportunity to replace them. This collective decline in job mobility means fewer job offers and 

an overall drop in wages, as firms have less incentive to compete for workers by offering higher 

pay, better benefits, greater say over scheduling, or more favorable conditions. The FTC 

estimates that the proposed ban on noncompetes would increase workers’ total earnings by close 

to $300 billion per year.4 

Second, the existing evidence indicates that noncompete clauses reduce innovation and 

competition in product and service markets. Studies show that locking workers in place reduces 

innovation, likely by decreasing the flow of information and knowledge among firms. By 

preventing workers from starting their own businesses and limiting the pool of talent available 

for startups to hire, noncompetes also limit entrepreneurship and new business formation. This in 

turn reduces product quality while raising prices. Indeed, existing evidence from the health care 

sector suggests that the proposed ban would decrease consumer prices, potentially to the tune of 

$150 billion a year. 5 

A recent Commission action shows how depriving new businesses of access to skilled 

workers can thwart competition. In the highly concentrated glass manufacturing sector, 

incumbent firms imposed noncompetes on thousands of employees. These noncompetes locked 

up highly specialized workers, tending to impede the entry and expansion of rivals by depriving 

them of access to qualified employees.6 

The empirical evidence available to date, coupled with the Commission’s years of work 

on noncompetes, forms the basis for the proposed rule.7 The proposal determines that employers’

4 See NPRM Part VII.B.1 (describing the Commission’s assessment of the benefits of the proposed rule). 5 Drawing from a study on the financial industry, Commissioner Wilson suggests that suspending noncompetes here 

caused higher prices and more employee misconduct. See Umit G. Gurun, Noah Stoffman & Scott E. Yonker, 

Unlocking Clients: The Importance of Relationships in the Financial Advisory Industry, 141 J. FIN. ECON. 1218 

(2021). Notably, under the proposed rule, firms will still have contractual methods to protect their client lists, unlike 

the firms observed in this study, which were prohibited from using non-solicitation agreements in addition to 

noncompete clauses. Furthermore, the change in the financial industry may have curtailed beneficial 

entrepreneurship, since it only covered mobility of workers between member firms, and therefore continued to 

permit some noncompete clauses which could prevent workers from starting their own businesses. 

6 Complaint, In re O-I Glass, Inc., File No. 211-0182 (Jan. 4, 2023), 

https://www.ftc.gov/system/files/ftc_gov/pdf/2110182o-iglasscomplaint.pdf; Complaint, In re Ardagh Group S.A., 

File No. 211-0182 (Jan. 4, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/2110182ardaghcomplaint.pdf; see 

Press Release, Fed. Trade Comm’n, FTC Cracks Down on Companies That Impose Harmful Noncompete

Restrictions on Thousands of Workers (Jan. 4, 2023), https://www.ftc.gov/news-events/news/pressreleases/2023/01/ftc-cracks-down-companies-impose-harmful-noncompete-restrictions-thousands-workers. 7 The Commission has conducted extensive public outreach relating to noncompete clauses. See, e.g., Fed. Trade 

Comm’n, Hearings on Competition and Consumer Protection in the 21st Century, 

https://www.ftc.gov/enforcement-policy/hearings-competition-consumer-protection (including discussion of 

noncompete agreements during the Oct. 15–17, 2018 and June 12, 2019 hearings, and inviting public comment on 

topics including “the use of non-competition agreements and the conditions under which their use may be 

inconsistent with the antitrust laws”); Fed. Trade Comm’n, Non-Competes in the Workplace: Examining Antitrust 

and Consumer Protection Issues (Jan. 9, 2020), https://www.ftc.gov/news-events/events/2020/01/non-competes-
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

use of noncompetes is an unfair method of competition under Section 5 of the FTC Act. It 

recognizes that noncompetes may be unlawful in different contexts for different reasons; for 

example, employers’ use of noncompetes to bind low-wage workers may be coercive and unfair 

in ways that the use of noncompetes to bind senior executives is not. Still, the proposal concludes 

that, in the aggregate, employers’ use of noncompetes undermines competition across markets in 

ways that are harmful to workers and consumers and warrant a prohibition. 

The proposed rule also draws on key lessons learned from state efforts to limit or ban the 

use of noncompetes. For example, research shows that some employers continue to use 

noncompetes even in states that have declared them null and void. As a result, workers in states 

where noncompetes are unenforceable are about as likely to have one in their contract as workers 

in other states.8 In practice this causes confusion and uncertainty for workers about whether they 

are bound by an enforceable noncompete, which can dissuade them from seeking or accepting 

another job. To address this, the proposed rule would both prohibit employers from representing 

to workers that they are covered by a noncompete clause and require them to actively notify 

workers presently covered that these clauses are now void and cannot be enforced. 

Action by federal enforcers is particularly appropriate here given that the harms from 

noncompetes flow across state lines. Many labor markets are spread across more than one state, 

and product markets are typically multistate as well, so the use of noncompetes in one state can 

harm workers and consumers in others. Moreover, employers may seek to circumvent state laws 

restricting noncompetes through the use of choice-of-law provisions and forum selection clauses, 

so that one state’s lenient approach to noncompetes may have spillover effects into other states.9 

workplace-examining-antitrust-consumer-protection-issues; Fed. Trade Comm’n, Making Competition Work: 

Promoting Competition in Labor Markets (Dec. 6–7, 2021), https://www.ftc.gov/newsevents/events/2021/12/making-competition-work-promoting-competition-labor-markets; Fed. Trade Comm’n,

Solicitation for Public Comments on Contract Terms that May Harm Competition (Aug 5, 2021), 

https://www.regulations.gov/document/FTC-2021-0036-0022. The FTC has also focused on noncompete clauses in 

connection with its merger review work. See Press Release, Fed. Trade Comm’n, FTC Approves Final Order

Restoring Competitive Markets for Gasoline and Diesel in Michigan and Ohio (Aug. 9, 2022), 

https://www.ftc.gov/news-events/news/press-releases/2022/08/ftc-approves-final-order-restoring-competitivemarkets-gasoline-diesel-michigan-ohio; Press Release, Fed. Trade Comm’n, FTC Approves Final Order Imposing

Strict Limits on Future Mergers by Dialysis Service Provider DaVita, Inc. (Jan. 12, 2022), 

https://www.ftc.gov/news-events/news/press-releases/2022/01/ftc-approves-final-order-imposing-strict-limitsfuture-mergers-dialysis-service-provider-davita-inc; Press Release, Fed. Trade Comm’n, FTC Approves Final Order

Requiring Divestitures of Hundreds of Retail Gas and Diesel Fuel Stations Owned by 7-Eleven, Inc. (Nov. 10, 

2021), https://www.ftc.gov/news-events/news/press-releases/2021/11/ftc-approves-final-order-requiringdivestitures-hundreds-retail-gas-diesel-fuel-stations-owned-7. 8 Evan P. Starr, James J. Prescott, & Norman D. Bishara, Noncompete Agreements in the U.S. Labor 

Force, 64 J. L. & ECON. 53, 81 (2021). 9 Non-compete clauses often contain choice-of-law provisions designating a particular state’s law for resolution of

any future disputes. See Gillian Lester & Elizabeth Ryan, Choice of Law and Employee Restrictive Covenants: An 

American Perspective, 31 COMP. LAB. & POL’Y J. 389, 396–402 (2010). Some non-compete clauses include forum 

selection clauses, which specify the court and location where any dispute will be heard. Id. at 402–04. When 

contracting with workers in states with relatively stringent non-compete laws, companies may include choice-of-law 

and forum-selection provisions that designate jurisdictions with less stringent non-compete laws. The default rule 

under conflict-of-laws principles is that the court honors the parties’ choice of law, meaning that the burden is on the 

worker to argue that the law of a different forum should apply. Id. at 394. 
The Federal Trade Commission is particularly well suited to this task. Congress designed 

the FTC to be an expert administrative agency that could enforce the prohibition against unfair 

methods of competition through rulemaking as well as through case-by-case adjudication. 

Although the Commission has primarily pursued antitrust enforcement through adjudication, 

rulemaking can deliver several benefits—including greater legal clarity and predictability, 

greater administrability and efficiency of enforcement, and greater public participation and airing 

of a maximally broad range of viewpoints and criticisms.10 

Several factors seem to make noncompetes especially ripe for enforcement through 

rulemaking rather than adjudication, including the magnitude and scope of the apparent harms. 

Private litigation in this area may also be limited, given that there is no private right of action 

under Section 5 of the FTC Act—and that arbitration clauses and class action waivers in 

employment contracts often can functionally preclude lawsuits by workers. 

Moreover, the FTC has notable expertise in this area. The Commission began deepening 

its work on noncompetes under Chairman Joseph Simons four years ago. Since then, the agency 

has held multiple workshops and sought and received public comments on three separate 

occasions. Our staff have closely studied the available economic research and reviewed hundreds 

of comments from employers, advocates, trade associations, members of Congress, state and 

local officials, unions, and workers. 

In her dissent, Commissioner Wilson questions the Commission’s authority to engage in 

“unfair methods of competition” rulemaking.11 But the rulemaking authority we are exercising 

today is firmly rooted in the text and structure of the FTC Act and supported both by judicial 

precedent interpreting the scope of the law as well as further statutory language from the 1970s.12 

10 See, e.g., Rohit Chopra & Lina Khan, The Case for “Unfair Methods of Competition” Rulemaking, 87 U. CHI. L. 

REV. 357 (2020); Nat’l Petroleum Refiners Ass’n v. FTC, 482 F.2d 672, 683 (D.C. Cir. 1973) (noting that “utilizing

rule-making procedures opens up the process of agency policy innovation to a broad range of criticism, advice and 

data that is ordinarily less likely to be forthcoming in adjudication”). 11 Commissioner Wilson argues that our enforcement actions are in direct tension with a Seventh Circuit decision, 

Snap-On Tools Corp. v. FTC, 321 F.2d 825 (7th Cir. 1963). Snap-On Tools is distinguishable on several fronts, 

including the fact that it concerned noncompetes used in the business-to-business context, not those used by an 

employer to restrict its workers. Additionally, while the majority stated that it is “not prepared to say that [the 

termination restriction] is a per se violation of the antitrust laws,” id. at 837, the Commission did not argue for a per 

se rule and so the issue was not litigated. Id. at 830-31; id. at 839 (Hastings, C.J., dissenting). Notably, the question 

before the Seventh Circuit was not whether the noncompete clause itself constituted an unfair method of 

competition. The Commission had held that the termination restriction provision was unlawful because it was used 

as an enforcement mechanism to ensure compliance with the other provisions. Id. at 836-37. Thus, once the court 

found that the other restrictive provisions in the agreement were lawful, it also held that the clause restricting 

competition upon termination did not violate the FTC Act. Id. at 837. 12 The plain text of the FTC Act clearly authorizes the Commission to issue rules. Specifically, Section 6(g) enables 

the agency to “make rules and regulations for the purpose of carrying out the provisions” of the law. Several other

provisions support the conclusion that Section 6(g) confers substantive rulemaking authority. For instance, Section 

18 explicitly preserves “any authority of the Commission to prescribe rules (including interpretive rules), and 

general statements of policy, with respect to unfair methods of competition in or affecting commerce.” The D.C.

Circuit endorsed this plain reading of 6(g) in Petroleum Refiners, 482 F.2d at 698, when it considered and rejected 

an argument that Section 6(g) only authorized the FTC to promulgate procedural or interpretive rules. Petroleum 

Refiners is the only case that directly addresses the FTC’s Section 6(g) rulemaking authority. This holding—that the 

FTC may “promulgate rules defining the meaning of the statutory standards of the illegality [the agency was] 

empowered to prevent,” id. at 698—represents the current state of the law. 
 

Commissioner Wilson also suggests that the Commission’s authority for the NPRM will be 

challenged under the major questions doctrine, which the Supreme Court recently applied in 

West Virginia v. EPA. Here, however, the FTC is operating under clear statutory authority. 

Identifying and addressing unfair methods of competition is central to the mandate that Congress 

gave the Commission in the text of our authorizing statute. Indeed, a greater threat to the 

“vesting of federal legislative power in Congress” would be for this Commission to repudiate or 

ignore Congress’s clear direction to the Commission to consider rules to address unfair methods

of competition.13 

This proposal is the first step in the FTC’s rulemaking process. It identifies several 

potential alternative rules, including those that would cover only a subset of workers or that 

would apply different legal standards to different categories of workers. Receiving input from a 

broad set of market participants, including those who have experienced firsthand the effects of 

noncompete clauses, will be critical to our efforts. I urge members of the public to review our 

proposal and submit comments. 

A few topics are especially worthy of close consideration. 

First, should the rule apply different standards to noncompetes that cover senior 

executives or other highly paid workers? As the NPRM notes, these workers may be less 

vulnerable to coercion, but restraining them through noncompetes may still harm competition—

for example, by making it harder and more expensive for potential entrants to recruit individuals 

for leadership positions. I am keen for input on this question, including on how any such 

category of workers should be defined and what standards should be applied. For example, if the 

Commission were to adopt a “rebuttable presumption” of illegality for noncompetes affecting 

these workers, what showing should be required to overcome the presumption? 

Second, should the rule cover noncompetes between franchisors and franchisees? The 

current proposal does not cover noncompetes used by franchisors to restrict franchisees, but we 

recognize that in some cases they may raise concerns that are analogous to those raised by 

noncompetes between employers and workers. We welcome the public’s views on this topic, as 

well as data or other evidence that could inform our consideration of this issue. 

Third, what tools other than noncompetes might employers use to protect valuable 

investments, and how sufficient are these alternatives? The proposal identifies several potential 

mechanisms that employers may use—including trade secrets law and confidentiality 

agreements—and we preliminarily find that these alternatives reasonably achieve the goal of 

protecting investments without unduly burdening competition. We welcome feedback on the 

Commission’s preliminary analysis of this issue.

I am deeply grateful to staff in the Office of Policy Planning, the Bureau of Competition, 

the Bureau of Economics, and the Office of General Counsel for their careful and thorough work 

on this proposal. I am also grateful to the many scholars, advocates, and journalists whose work 

in recent years has shed light on the proliferation of noncompetes and the resulting harms that 

can manifest. 

13 West Virginia v. EPA, 142 S. Ct. 2587, 2617 (2022) (Gorsuch, J., concurring). 
While the NPRM is just the first step toward a final rule, it marks the Commission’s 

commitment to exercising the full set of tools and authorities that Congress gave us and to 

ensuring that our work is protecting all Americans. I look forward to working closely with my 

colleagues to continue this critical effort. 

***