Advocacy Letter to Oregon Legislature: Oregon’s House Bill 4130

Office of Policy Planning
UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
February 26, 2024
VIA ELECTRONIC MAIL
Senator Deb Patterson
900 Court St. NE, S-411
Salem, Oregon 97301
Re: Oregon’s House Bill 4130
Dear Chair Patterson and Members of the Senate Health Care Committee:
I write this letter as the Director of the FTC’s Office of Policy Planning, the FTC office that
provides advocacies and submits filings supporting competition and consumer protection
principles to state legislatures, regulatory boards, and officials.
I understand that your office is considering a bill (HB 4130) that, among other things,
prohibits non-compete agreements for medical professionals licensed to practice in Oregon.
The FTC proposed a rule in January of 2023 banning non-compete clauses across sectors in
its jurisdiction. In doing so, the FTC made several preliminary findings and received
numerous comments that you may find informative as you consider this bill. That notice of
proposed rulemaking (NPRM) is attached to this letter.1
As the NPRM notes, nationwide, approximately one in five workers—or thirty million
Americans—are bound by non-compete clauses.2 As it relates to physicians, the NPRM
cites to an empirical study that found “that 45% of physicians worked under a non-compete
clause in 2007.”3 The FTC preliminarily concludes that because non-compete clauses
decrease mobility and competition in the labor market, non-compete clauses suppress
wages not only for the workers subject to them, but also suppress wages even for workers
who are not subject to them.4 The FTC also made preliminary findings that because non-
compete clauses decease competition in product and service markets, they harm
innovation and prevent new businesses from forming.5 With respect to healthcare
specifically, the FTC preliminarily estimated that a nationwide ban on non-compete
1 The proposal and additional information are also available on our website at https://www.ftc.gov/legal-
library/browse/federal-register-notices/non-compete-clause-rulemaking, and in the Federal Register at Non-
Compete Clause Rule, 88 Fed. Reg. 3482 (proposed Jan. 19, 2023).
2 Non-Compete Clause Rule, 88 Fed. Reg. at 3485.
3 Id. at 3486 (citing Kurt Lavetti, Carol Simon, & William D. White, The Impacts of Restricting Mobility of
Skilled Service Workers Evidence from Physicians, 55 J. Hum. Res. 1025, 1042 (2020)).
4 Id.
5 Id. at 3502.
1

clauses would reduce healthcare prices and decrease healthcare spending by $148.0 billion
annually.6 This finding was based on an empirical study of non-compete clause
enforceability on consumer prices in the market for physician services.7
The comment period on the proposed rule closed on April 19, 2023. We received more than
21,000 comments from members of the public, which are publicly available and searchable
on Regulations.gov.8 I am highlighting a few of those comments that you may particularly
interesting, as they are illustrative of comments we received from physicians:
• 	“I am a physician Oncologist whose career has been destroyed by the non-compete
contracts. I have moved my children and my dependent elderly parents through
multiple states over the last 10 [years] (KY, NH, IA, PA, NY) because I refused to
yield to unethical billing practices…. My children and parents and my husband's
career suffered due to the moves. Now, in order to keep my family in one place, my
only option is to travel out of state or county to work locums.”9
• 	“When working conditions fell apart regardless of my requests for adequate sleep
following 36 hours straight of working on call at my designated stroke hospital,
time for meals or breaks within 18+ hour workdays, and a reasonable travel distance
within the area the company demanded I relocate to, I was met with threats from
HR regarding my non-compete if I were to leave. When the company cut my salary
in half without my consent and I requested to leave in search of a living wage
suitable for paying my new rent within company’s demanded on-call radius, I was
again met with threats from HR…. Working conditions became so intense, I was
placed on migraine medications at the recommendations of my doctor and required
three separate trips in the ER for medical conditions related to stress, inability to eat
or drink while tied within tens of hours long surgeries, and pain from transporting
equipment between many hospitals, up to 2 or 3 facilities a DAY. Again, as my
health deteriorated under intense working conditions, I requested to be released
from the company in face of the company's numerous contract breaches. Again I
was met with threats from HR and now their legal team.”10
• 	“As a new graduate from residency I took a predatory job; when I left that position,
the hospital whose patients I was treating wished me to continue caring for their
patients and to continue our relationship. Unfortunately, due to a non-compete
agreement, I was immediately unable to contact my patients, many of whom have
later found me after emotional experiences with other surgeons after feeling initially
abandoned in their care…. While this was a challenging time in my life due to the
sense of responsibility that I hold for my patients, it is nothing compared to a
woman who is going through breast cancer treatment whose surgeon has been
forced to break contact with her.”11
6 Id. at 3527.
7 Id. (extrapolating from Naomi Hausman & Kurt Lavetti, Physician Practice Organization and Negotiated
Prices: Evidence from State Law Changes, 13 a.m. Econ. J. Applied Econ. 258 (2021)).
8 Public Comments, Non-Compete Clause Rule NPRM (Jan. 9, 2023), available at
https://www.regulations.gov/document/FTC-2023-0007-0001.
9 Anonymous Comment, Doc. No. FTC-2023-0007-0588.
10 Comment of Alexis Hofmann, Doc. No. FTC-2023-0007-1252.
11 Comment of Zoe MacIsaac, Doc. No. FTC-2023-0007-15747
2

• 	“The patients I leave behind are devastated and quite honestly are not sure what to
do. The Healthcare system I am leaving does not have enough physicians to take
care of them. The patients I have taken care of will suffer medically and
emotionally from this non compete and I will suffer from this non compete.”12
• 	“I am a practicing OB/GYN physician in Shreveport, LA…. I was put into a non-
negotiable, vague non-compete with no expiration date…. I needed a job. I was in a
large amount of debt with accumulating interest during my four years of residency
with a minimal salary. Honestly, I could not afford an attorney. So naively I trusted
that the people that had been training me for the past 4 years would not take
advantage of me in a contract. I did not have the ability to seek advice on “how” to
negotiate a contract with my mentors since my mentors were the ones who wrote
the contract.”13
• 	“I am a physician in a rural underserved area of Appalachia…Non-competes have
become ubiquitous in the healthcare industry. With hospital systems merging,
providers with aggressive non-competes must abandon the community that they
serve if they chose to leave their employer…. Healthcare providers feel trapped in
their current employment situation, leading to significant burnout that can shorten
their carer longevity. Many are forced to retire early or take a prolonged pause in
their career when they have no other recourse to combat their employer.”14
• 	“I have been subject to a non-compete for 11 years in aggregate as a physician.
Because of my non-compete, I am unable to take a position with another
organization without having to drive much farther outside of my non-compete
stipulated geographic restrictions (which would add to the time that I am away from
my family, and costs for fuel and vehicle maintenance). Because of my non-
compete, I haven’t had a raise in 6 years, because I can’t negotiate with my
employer, because I have no bargaining position to negotiate from if I don't have
options of alternate employment within the restrictions of my non-compete.”15
In addition to the public comments the FTC received there are several portions of the
NPRM that you may find particularly informative.
• 	Evidence on the existing use of non-compete clauses in the U.S. is set forth on
pages 3485-86 of the NPRM. The evidence shows that non-compete clauses are
used extensively, including for low-wage workers and also for relatively high
wage workers like physicians. One survey found that 35% of workers without a
bachelor’s degree and 33% of workers earning less than $40,000 per year have
worked under a non-compete clause at some point in their lives. Another analysis
of the same data found that 53% of workers covered by non-compete clauses are
hourly workers.167 As noted above, one study found that 45% of physicians
12 Comment of Stephen Szabo, Doc. No. FTC-2023-0007-1110.
13 Comment of Lauren McCalmont, Doc. No. FTC-2023-0007-4414.
14 Comment of Sean O’Connor, Doc. No. FTC-2023-0007-0026.
15 Comment of Matthew Taylor, Doc. No. FTC-2023-0007-0616.
16 Non-Compete Clause Rule, 88 Fed. Reg. at 3485.
3

worked under a non-compete clause.17
• 	An extensive discussion of the literature, studies, and other evidence on the effects
of non-compete clauses is set forth on pages 3484-93 of the NPRM. Many of these
studies are further discussed as part of the FTC’s cost-benefit analysis on pages
3522-30.
• 	In particular, the evidence regarding the effect of non-compete clauses on
healthcare prices is discussed on page 3490 and is further discussed as part of the
FTC cost-benefit analysis on page 3527-3528. Specifically, the NPRM discusses a
study of non-compete clauses in physician markets that finds that such clauses
lead to greater concentration and higher prices for consumers.
• 	Evidence that non-compete clauses reduce earnings for both workers who are and
who are not covered by non-compete clauses, as well as increase racial and gender
wage gaps, is set forth on pages 3486-88 and 3522-25 of the NPRM.
• 	Evidence that non-compete clauses reduce workforce mobility and the resulting
effects is set forth on pages 3489-93, 3526-28, and 3529, including the effects
on consumer prices, access to talent, new business formation, innovation, and
training and other investments.
• 	The FTC preliminarily determines that non-compete clauses negatively affect
competition, as explained on pages 3500-02. It also preliminarily determines that
non-compete clauses are exploitative and coercive, both at the time of contracting
and at departure, for all workers except for senior executives, as explained on
pages 3502-04.
• 	The NPRM considers the common justifications put forward for non-compete
clauses, including increasing incentives to invest in workers and protecting trade
secrets, and preliminarily concludes that non-compete clauses are nevertheless
unlawful. The discussion of justifications commonly raised for non-compete
clauses as well as alternatives to non-compete clauses available to employers to
protect their investments is on pages 3504-08.
• 	The FTC explains each section of its proposed rule on pages 3508-16. The
proposed rule’s relation to state law is explained on page 3515. The NPRM
explains on page 3510 that the proposed federal ban does not cover employers
outside of the FTC’s jurisdiction, and thus the proposed federal ban would be
inapplicable to an entity that is not “organized to carry on business for its own
profit or that of its members.” Accordingly, only states, and not the proposed
federal rule, could cover such entities.
We hope that the research and analysis the FTC has undertaken concerning non-compete
clauses is valuable to you as you consider this bill.
17 Id. at 3486.
4

Sincerely,
Hannah Garden-Monheit
Hannah Garden-Monheit
Director
Office of Policy Planning
cc: 	Oregon Senate Health Care Committee Members
5

34 82 	Federal Register/ Vol. 88, No. 12 / Thursday, January 19 , 2023 / Proposed Rules
FEDER AL T RA DE CO MMI SS ION
16 CFR Pa rt 910
RIN 3084- AB74
Non-Compete Clause R ul e
AGENCY: Federal Trade Commission.
ACTIO N: Notice of proposed rulemaking.
SUMMARY: 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.
DATES: Comments must be received on
or before March 20, 2023.
AD DR ESSES: Interested parties may file a
comment online or on paper by
following the instructions in the
Request for Comment part of the
SUPPLEMENTARY INFORMATION section
below. Write "Non-Compete Clause
Rulemaking, Matter No. P201200" on
your comment, and file your comment
online at https:llwww.regulations.gov,
by following the instructions on the
web-based form. If you prefer to file
your comment on paper, mail your
comment to the following address:
Federal Trade Commission, Office of the
Secretary, 600 Pennsylvania Avenue
NW, Suite CG-5610 (Annex C) ,
Washington, DC 20580.
FOR FURTHE R INFORMATION CO NTACT:
Shannon Lane (202-876-5651),
Attorney, Office of Policy Planning,
Federal Trade Commission.
SUPPLEMENTARY INFORMATION:
I. Overview of the Pro posed Rule
A non-compete clause is a contractual
term between an employer and a worker
that typically blocks the worker from
working for a competing employer, or
starting a competing business, within a
certain geographic area and period of
time after the worker's employment
ends. Non-compete clauses limit
competition by their express terms. As
a result, non-compete clauses have
always been considered proper subjects
for scrutiny under the nation's antitrust
laws.1 In addition, non-compete clauses
1 See, e.g., U.S. v. Am . Tobacco Co ., 221 U.S. 106,
181-83 (1911) (holding several tobacco companies
violated Sections 1 and 2 of the Sherman Act due
to the collective effect of six of the companies'
practices, one of which was the "c onstantly
between employers and workers are
traditionally subject to more exacting
review under state common law than
other contractual terms, due, in part, to
concerns about unequal bargaining
power between employers and workers
and the fact that non-compete clauses
limit a worker's ability to practice their
trade. 2
In recent decades, important research
has shed light on how the use of non
compete clauses by employers affects
competition. Changes in state laws
governing non-compete clauses have
provided several na tural experiments
that have allowed researchers to study
the impact of non-compete clauses on
competition. This research has shown
the use of non-compete clauses by
employers has negatively affected
competition in labor markets, resulting
in reduced wages for workers across the
labor force-including workers not
bound by non-compete clauses. 3 This
research has also shown that, by
suppressing labor mobility, non
compete clauses have negatively
affected competition in product and
service markets in several ways.4
In this rulemaking, the Commission
seeks to ensure competition policy is
aligned with the current economic
evidence about the consequences of
non-compete clauses. In the
Commission's view, the existing legal
frameworks governing non-compete
clauses- formed decades ago, without
the benefit of this evidence-allow
serious anticompetitive harm to labor,
product, and service markets to go
unchecked .
Section 5 of the Federal Trade
Commission Act ("FTC Act") declares
"unfair methods of competition" to be
unlawful.5 Section 5 further directs the
Commission "to prevent persons,
partnerships, or corporations ... from
using unfair methods of competition in
or affecting corn.rnerce." 6 Section 6(g) of
the FTC Act authorizes the Commission
to "make rules and regulations for the
purpose of carrying out the provisions
of ' the FTC Act, including the Act's
recurring" use of non -compete clauses); Newburger,
Loeb &- Co. , Inc. v. Gross, 563 F.2d 1057, 1082 (2d
Cir. 1977) ("Although such issues have not often
been raised in the federal courts, employee
agreements not to compete are proper subjects for
scrutiny under section 1 of the Sherman Act. When
a company interferes with free competition for one
of its former employee's services, the market 's
ability to achieve the most economically efficient
allocation of labor is impaired. Moreover,
employee-noncompetition clauses can tie up
industry expertise and experience and thereby
forestall new entry.") (internal citation omitted).
2 See infra Part 11.C.
3 See infra Part II.B.1.
4 See infra Part 11.B.2.
5 15 U.S.C. 45(a)(l).
• 15 U.S.C. 45(a)(2).
prohibition of unfair methods of
competition.7
Pursuant to Sections 5 and 6(g) of the
FTC Act , the Commission proposes the
Non-Compete Clause Rule. The
proposed rule would provide it is an
Uillair method of competition- and
therefore a violation of Section 5- for an
employer to enter into or attempt to
enter in to a non-compete clause with a
worker; maintain wi th a worker a non
compete clause; or, under certain
circumstances, represent to a worker
that the worker is subject to a non
compete clause. 8
The proposed rule would define the
term "non-compete clause" as a
contractual term between an employer
and a worker that prevents the worker
from seeking or accepting employment
with a person, or operating a business,
after the conclusion of the worker's
employment with the employer.9 The
proposed rule would also clarify that
whether a contractual provision is a
non-compete clause would depend not
on what the provision is called, but how
the provision functions. As the
Commission explains below, the
definition of non -compete clause would
generally not include other types of
restrictive employment covenants
such as non-disclosure agreements
("NDAs") and client or customer non
solicitation agreements- because these
covenants generally do not prevent a
worker from seeking or accepting
employment with a person or operating
a business after the conclusion of the
worker's employment with the
employer. However, under the proposed
definition of "non-compete clause,"
such covenants would be considered
non-compete clauses where they are so
unusually broad in scope that they
function as such. 10
The proposed rule would define
"employer" as a person- as the term
"person" is defined in 15 U.S.C. 57b
l(a)(6)- that hires or contracts with a
worker to work for the person .11 The
proposed rule would define "worker" as
a natural person who works, whether
paid or unpaid, for an employer. The
proposed rule would clarify that the
term "worker" includes an employee,
individual classified as an independent
contractor, extern, intern, volunteer,
apprentice, or sole proprietor who
7 15 u.s.c. 46(g).
• See proposed § 910.2(a). For ease of reference,
this NPRM employs the term "use of non-compete
clauses" as a shorthand to refer lo th .e conduct that
the proposed rule would provide is an unfair
method of competition.
• See proposed§ 910.l(b)(l).
10 See infra Part V (in the section-by-section
analysis for proposed § 910 .1 {b)).
11 See proposed § 910. l(c).

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3483
provides a service to a client or
customer.12
In addition to prohibiting employers
from entering into non-compete clauses
with workers starting on the rule’s
compliance date, the proposed rule
would require employers to rescind
existing non-compete clauses no later
than the rule’s compliance date.13 The
proposed rule would also require an
employer rescinding a non-compete
clause to provide notice to the worker
that the worker’s non-compete clause is
no longer in effect.14 To facilitate
compliance, the proposed rule would
(1) include model language that would
satisfy this notice requirement 15 and (2)
establish a safe harbor whereby an
employer would satisfy the rule’s
requirement to rescind existing non-
compete clauses where it provides the
worker with a notice that complies with
this notice requirement.16
The proposed rule would include a
limited exception for non-compete
clauses between the seller and buyer of
a business.17 This exception would only
be available where the party restricted
by the non-compete clause is an owner,
member, or partner holding at least a
25% ownership interest in a business
entity.18 The proposed regulatory text
would clarify that non-compete clauses
covered by this exception would remain
subject to federal antitrust law as well
as all other applicable law.
The proposed rule would establish an
effective date of 60 days, and a
compliance date of 180 days, after
publication of a final rule in the Federal
Register.19
In this notice of proposed rulemaking
(‘‘NPRM’’), the Commission describes
and seeks comment on several
alternatives to the proposed rule,
including whether non-compete clauses
between employers and senior
executives should be subject to a
different standard than non-compete
clauses with other workers.20 The
Commission also assesses the benefits
and costs of the proposed rule, the
impact of the proposed rule on small
businesses, and compliance costs
related to the proposed rule’s notice
requirement.21
The Commission seeks comment on
all aspects of this NPRM. Comments
12 See proposed § 910.1(f).
13 See proposed § 910.2(b)(1).
14 See proposed § 910.2(b)(2)(A).
15 See proposed § 910.2(b)(2)(C).
16 See proposed § 910.2(b)(3).
17 See proposed § 910.3.
18 See proposed §§ 910.3 and 910.1(e).
19 See proposed § 910.5.
20 See infra Part VI.
21 See infra Parts VII–IX.
must be received on or before March 20,
2023.22
II. Factual Background
A. What are non-compete clauses?
A non-compete clause is a contractual
term between an employer and a worker
that prevents the worker from seeking or
accepting employment with a person, or
operating a business, after the
conclusion of the worker’s employment
with the employer.23 A typical non-
compete clause blocks the worker from
working for a competing employer, or
starting a competing business, within a
certain geographic area and period of
time after their employment ends. A
non-compete clause may be part of the
worker’s employment contract or may
be contained in a standalone contract.
Employers and workers may enter into
non-compete clauses at the start of,
during, or at the end of a worker’s
employment.
If a worker violates a non-compete
clause, the employer may sue the
worker for breach of contract. An
employer may be able to obtain a
preliminary injunction ordering the
worker, for the duration of the lawsuit,
to stop the conduct that allegedly
violates the non-compete clause. If the
employer wins the lawsuit, the
employer may be able to obtain a
permanent injunction ordering the
worker to stop the conduct that violates
the non-compete clause; a payment of
monetary damages from the worker; or
both.24 Where workers are subject to
arbitration clauses,25 the employer may
seek to enforce the non-compete clause
through arbitration.
The below examples of non-compete
clauses from recent news reports, legal
settlements, and court opinions are
illustrative.
22 Pursuant to Section 22(d)(4) of the FTC Act, 15
U.S.C. 57b–3(d)(4), this NPRM was not included in
the Commission’s Spring 2022 Regulatory Agenda
because the Commission first considered it after the
publication deadline for the Regulatory Agenda.
23 See proposed § 910.1(b). The term ‘‘non-
compete clause’’ has also been used describe
agreements between one or more business not to
compete against one another, see, e.g., Lumber
Liquidators, Inc. v. Cabinets To Go, LLC, 415 F.
Supp. 3d 703, 709 (E.D. Va. 2009), as well as certain
kinds of moonlighting during a worker’s
employment, see, e.g., In the Matter of the
Investigation by Barbara D. Underwood, Att’y Gen.
of the State of N.Y. of WeWork Companies, Inc.,
Assurance of Discontinuance No. 18–101 (Sept. 18,
2018) at Exhibit B. As underscored above, however,
this proposed rule focuses only on post-
employment restraints that employers impose on
workers.
24 Donald J. Aspelund & Joan E. Beckner,
Employee Noncompetition Law § 8:2, § 8:22 (Aug.
2021).
25 See, e.g., Alexander J.S. Colvin, Econ. Pol’y
Inst., Report, The Growing Use of Mandatory
Arbitration (Apr. 6, 2018).
• A contractual term between a
security guard firm and its security
guards requiring that, for two years
following the conclusion of the security
guards’ employment with the firm, the
security guard may not ‘‘[a]ccept
employment with or be employed by’’ a
competing business ‘‘within a one
hundred (100) mile radius’’ of the
security guard’s primary jobsite with the
firm and stating that the security guards
may not ‘‘[a]ssist, aid or in any manner
whatsoever help any firm, corporation,
partnership or other business to
compete with’’ the firm. The non-
compete clause also contains a
‘‘liquidated damages’’ clause requiring
the security guard to pay the firm
$100,000 as a penalty for any conduct
that contravenes the agreement.26
• A contractual term between a glass
container manufacturing company and
its workers typically requiring that, for
two years following the conclusion of
the worker’s employment with the
company, the worker may not directly
or indirectly ‘‘perform or provide the
same or substantially similar services’’
to those the worker performed for the
company to any business in the U.S.,
Canada, or Mexico that is ‘‘involved
with or that supports the sale, design,
development, manufacture, or
production of glass containers’’ in
competition with the company.27
• A contractual term between a
sandwich shop chain and its workers
stating that, for two years after the
worker leaves their job, the worker may
not perform services for ‘‘any business
which derives more than ten percent
(10%) of its revenue from selling
submarine, hero-type, deli-style, pita
and/or wrapped or rolled sandwiches’’
located within three miles of any of the
chain’s more than 2,000 locations in the
United States.28
• A contractual term between a
steelmaker and one of its executives
prohibiting the executive from working
for ‘‘any business engaged directly or
indirectly in competition with’’ the
steelmaker anywhere in the world for
26 Fed. Trade Comm’n, Complaint, In re
Prudential Sec., Inc. et al., Matter No. 221 0026 at
¶ 12–¶ 13 (December 28, 2022).
27 Fed. Trade Comm’n, Complaint, In re Ardagh
Group S.A. et al., Matter No. 211 0182 at ¶ 9
(December 28, 2022).
28 Dave Jamieson, Jimmy John’s Makes Low-Wage
Workers Sign ‘Oppressive’ Noncompete
Agreements, HuffPost (Oct. 13, 2014). The company
agreed to remove the non-compete clause in 2016
as part of a settlement. Office of the Att’y Gen. of
the State of N.Y., Press Release, A.G. Schneiderman
Announces Settlement With Jimmy John’s To Stop
Including Non-Compete Agreements In Hiring
Packets (June 22, 2016).

3484 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
one year following the termination of
the executive’s employment.29
• A contractual term between an
office supply company and one of its
sales representatives stating that, for two
years after the sales representative’s last
day of employment, the sales
representative is prohibited from
‘‘engag[ing] directly or indirectly, either
personally or as an employee, associate,
partner, or otherwise, or by means of
any corporation or other legal entity, or
otherwise, in any business in
competition with Employer,’’ within a
100-mile radius of the sales
representative’s employment location.30
• A contractual term between a
nationwide payday lender and its
workers stating that, for one year after
the worker leaves their job, they are
prohibited from performing any
‘‘consumer lending services or money
transmission services’’ for any entity
that provides such services, or to ‘‘sell
products or services that are competitive
with or similar to the products or
services of the Company,’’ within a 15-
mile radius of any of the payday
lender’s 1,000 locations in the United
States.31
• A contractual term between an
online retailer and its warehouse
workers prohibiting the workers, for 18
months after leaving their job, from
‘‘directly or indirectly . . . engag[ing] or
support[ing] the development,
manufacture, marketing, or sale of any
product or service that competes or is
intended to compete with any product
or service sold, offered, or otherwise
provided by’’ the retailer—or that is
‘‘intended to be sold, offered, or
otherwise provided by [the retailer] in
the future’’—that the worker ‘‘worked
on or supported’’ or about which the
worker obtained or received
confidential information.32
• A contractual term between a
medical services firm and an
ophthalmologist stating that, for two
years after the termination of the
ophthalmologist’s employment with the
firm, the ophthalmologist shall not
engage in the practice of medicine in
29 AK Steel Corp. v. ArcelorMittal USA, LLC, 55
N.E.3d 1152, 1156 (Ohio Ct. App. 2016).
30 Osborne v. Brown & Saenger, Inc., 904 N.W.2d
34, 36 (N.D. 2017).
31 People of the State of Ill. v. Check Into Cash
of Ill., LLC, Complaint, 2017–CH–14224 (Ill. Circuit
Ct. Oct. 25, 2017), ¶ 29, ¶ 70, https://illinoisattorney
general.gov/pressroom/2017_10/Check_Into_Cash-
Complaint.pdf.
32 Spencer Woodman, Exclusive: Amazon makes
even temporary warehouse workers sign 18-month
non-compete clauses, The Verge (Mar. 26, 2015).
The company removed the non-compete clause
following the media coverage. Josh Lowensohn,
Amazon does an about-face on controversial
warehouse worker non-compete contracts, The
Verge (Mar. 27, 2015).
two Idaho counties unless the
ophthalmologist pays the firm a
‘‘practice fee’’ of either $250,000 or
$500,000, depending on when the
ophthalmologist’s employment ends.33
In addition to non-compete clauses,
other types of contractual provisions
restrict what a worker may do after they
leave their job. These other types of
provisions include, among others:
• Non-disclosure agreements
(NDAs)—also known as ‘‘confidentiality
agreements’’—which prohibit the
worker from disclosing or using certain
information;
• Client or customer non-solicitation
agreements, which prohibit the worker
from soliciting former clients or
customers of the employer (referred to
in this NPRM as ‘‘non-solicitation
agreements’’); 34
• No-business agreements, which
prohibit the worker from doing business
with former clients or customers of the
employer, whether or not solicited by
the worker;
• No-recruit agreements, which
prohibit the worker from recruiting or
hiring the employer’s workers;
• Liquidated damages provisions,
which require the worker to pay the
employer a sum of money if the worker
engages in certain conduct; and
• Training-repayment agreements
(TRAs), a type of liquidated damages
provision in which the worker agrees to
pay the employer for the employer’s
training expenses if the worker leaves
their job before a certain date.35
These other types of restrictive
employment covenants can sometimes
be so broad in scope that they serve as
de facto non-compete clauses.36
In addition to restricting what
workers may do after they leave their
jobs, employers have also entered into
agreements with other employers in
which they agree not to compete for one
another’s workers. These include no-
poach agreements, in which employers
agree not to solicit or hire one another’s
workers, and wage-fixing agreements, in
33 Intermountain Eye & Laser Ctrs. P.L.L.C. v.
Miller, 127 P.3d 121, 123 (Idaho 2005).
34 The term ‘‘non-solicitation agreement’’ can also
refer to a type of agreement between employers not
to solicit one another’s employees. In this NPRM,
however, the term refers only to contractual
provisions between employers and workers
prohibiting the worker from soliciting clients or
customers of the employer.
35 See, e.g., Norman D. Bishara, Kenneth J. Martin,
and Randall S. Thomas, An Empirical Analysis of
Non-Competition Clauses and Other Restrictive
Post-Employment Covenants, 68 Vand. L. Rev. 1, 13
(2015); Uniform Law Comm’n, Uniform Restrictive
Employment Agreement Act, Draft For Approval
(2021) at § 2.
36 See, e.g., Wegmann v. London, 648 F.2d 1072,
1073 (5th Cir. 1981); Brown v. TGS Mgmt. Co., LLC,
57 Cal. App. 5th 303, 306, 319 (Cal. Ct. App. 2020).
which employers agree to limit wages or
salaries (or other terms of
compensation).37
The Commission seeks comment on
its description in this Part II.A of non-
compete clauses. The Commission also
encourages workers, employers, and
other members of the public to submit
comments describing their experiences
with non-compete clauses.
B. Evidence Relating to the Effects of
Non-Compete Clauses on Competition
Non-compete clauses have presented
challenging legal issues for centuries.38
But only in the last two decades has
empirical evidence emerged to help
regulators and the general public
understand how non-compete clauses
affect competition in labor markets and
product and service markets.
In the early 2000s, researchers began
to shed new light on the impacts of non-
compete clauses on innovation and
productivity. As this new body of
research was evolving, news reports
revealed non-compete clauses were
being imposed even on low-wage
workers.39 These reports surprised
many observers, who had assumed only
highly skilled workers were subject to
non-compete clauses.40 Researchers
responded by applying the tools of
economic research to better understand
how employers were using non-compete
clauses and how they were affecting
competition.
1. Labor Markets
The empirical research on how non-
compete clauses affect competition
shows that the use of non-compete
clauses in the aggregate is interfering
with competitive conditions in labor
markets.
Labor markets function by matching
workers and employers. Workers offer
their skills and time to employers. In
return, employers offer pay, benefits,
and job satisfaction.41 In a well-
functioning labor market, a worker who
is seeking a better job—more pay, better
hours, better working conditions, more
enjoyable work, or whatever the worker
may be seeking—can enter the labor
market by looking for work. Employers
who have positions available compete
for the worker’s services. The worker’s
37 Fed. Trade Comm’n & U.S. Dep’t of Justice
Antitrust Division, Antitrust Guidance for Human
Resource Professionals (Oct. 2016) at 3.
38 See infra Part II.C.
39 See, e.g., Jamieson, supra note 28.
40 See, e.g., Alan B. Kreuger & Eric A. Posner, The
Hamilton Project, Policy Proposal 2018–05, A
Proposal for Protecting Low-Income Workers from
Monopsony and Collusion (February 2018) at 7.
41 See, e.g., Dep’t of the Treasury, Report, The
State of Labor Market Competition (March 7, 2022)
at 3.

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3485
current employer may also compete
with these prospective employers by
seeking to retain the worker—for
example, by offering to raise the
worker’s pay or promote the worker.
Ultimately, the worker chooses the job
that best meets their objectives. In
general, the more jobs available—i.e.,
the more options the worker has—the
stronger the match the worker will find.
Just as employers compete for workers
in a well-functioning labor market,
workers compete for jobs. An employer
who needs a worker will make it known
that the employer has a position
available. Workers who learn of the
opening will apply for the job. From
among the workers who apply, the
employer will choose the worker that
best meets the employer’s needs—in
general, the worker most likely to be the
most productive. In general, the more
workers who are available—i.e., the
more options the employer has—the
stronger the match the employer will
find.
Through these processes—employers
competing for workers, workers
competing for jobs, and employers and
workers matching with one another—
competition in the labor market leads to
higher earnings for workers, greater
productivity for employers, and better
economic conditions.
In a perfectly competitive labor
market, if a job that a worker would
prefer more—for example, because it
has higher pay or is in a better
location—were to become available, the
worker could switch to it quickly and
easily. Due to this ease of switching, in
a perfectly competitive labor market,
workers would easily match to the
optimal job for them. If a worker were
to find themselves in a job where the
combination of their happiness and
productivity is less than in some other
job, they would simply switch jobs,
making themselves better off.
However, this perfectly competitive
labor market exists only in theory. In
practice, labor markets deviate
substantially from perfect competition.
Non-compete clauses, in particular,
impair competition in labor markets by
restricting a worker’s ability to change
jobs. If a worker is bound by a non-
compete clause, and the worker wants a
better job, the non-compete clause will
prevent the worker from accepting a
new job that is within the scope of the
non-compete clause. These are often the
most natural alternative employment
options for a worker: jobs in the same
geographic area and in the worker’s
field of expertise. For example, a non-
compete clause might prevent a nurse in
Cleveland from working in the health
care field in Northeast Ohio, or a
software engineer in Orlando from
working for another technology
company in Central Florida. The result
is less competition among employers for
the worker’s services and less
competition among workers for
available jobs. Since the worker is
prevented from taking these jobs, the
worker may decide not to enter the labor
market at all. Or the worker may enter
the labor market but take a job in which
they are less productive, such as a job
outside their field.
Non-compete clauses affect
competition in labor markets through
their use in the aggregate. The effect of
an individual worker’s non-compete
clause on competition in a particular
labor market may be marginal or may be
impossible to discern statistically.
However, the use of a large number of
non-compete clauses across a labor
market markedly affects the
opportunities of all workers in that
market, not just those with non-compete
clauses. By making it more difficult for
many workers in a labor market to
switch to new jobs, non-compete
clauses inhibit optimal matches from
being made between employers and
workers across the labor force. As a
result, where non-compete clauses are
prevalent in a market, workers are more
likely to remain in jobs that are less
optimal with respect to the worker’s
ability to maximize their productive
capacity. This materially reduces wages
for workers—not only for workers who
are subject to non-compete clauses, but
for other workers in a labor market as
well, since jobs that would otherwise be
better matches for an unconstrained
worker are filled by workers subject to
non-compete clauses.
a. Estimates of Non-Compete Clause Use
Based on the available evidence, the
Commission estimates that
approximately one in five American
workers—or approximately 30 million
workers—is bound by a non-compete
clause.
A 2014 survey of workers by Evan
Starr, JJ Prescott, and Norman Bishara,
which resulted in 11,505 responses,
found 18% of respondents work under
a non-compete clause and 38% of
respondents have worked under one at
some point in their lives.42 Among the
42 Evan P. Starr, James J. Prescott, & Norman D.
Bishara, Noncompete Agreements in the U.S. Labor
Force, 64 J.L. & Econ. 53, 53 (2021). A survey of
workers conducted in 2017 by Payscale.com
reached similar results. This survey estimated that
24.2% of workers are subject to a non-compete
clause. Natarajan Balasubramanian, Evan Starr, &
Shotaro Yamaguchi, Bundling Employment
Restrictions and Value Appropriation from
Employees 35 (2022), https://papers.ssrn.com/sol3/
papers.cfm?abstract_id=3814403. This survey also
studies of non-compete clause use
discussed here, this study has the
broadest and likely the most
representative coverage of the U.S. labor
force.43 Starr, Prescott, and Bishara also
found that, among workers without a
bachelor’s degree, 14% of respondents
reported working under a non-compete
clause at the time surveyed and 35%
reported having worked under one at
some point in their lives.44 For workers
earning less than $40,000 per year, 13%
of respondents work under a non-
compete clause and 33% worked under
one at some point in their lives.45
Furthermore, this survey shows 53% of
workers who are covered by non-
compete clauses are hourly workers.46
Starr, Prescott, and Bishara also
found, in states where non-compete
clauses are unenforceable, workers are
covered by non-compete clauses at
approximately the same rate as workers
in other states.47 This suggests
employers maintain non-compete
clauses even where they likely cannot
enforce them.
Other estimates of non-compete
clause use cover subsets of the U.S.
labor force. One study, a 2021 study by
Rothstein and Starr, is based on
National Longitudinal Survey of Youth
(NLSY) data.48 The NLSY consists of a
nationally representative sample of
8,984 men and women born from 1980–
84 and living in the United States at the
time of the initial survey in 1997.49 The
survey is an often-used labor survey
conducted by the Bureau of Labor
Statistics, rather than a one-off survey
found that non-compete clauses are often used
together with other restrictive employment
covenants, including non-disclosure, non-
recruitment, and non-solicitation covenants. Id. at
17 (reporting that respondents that had a non-
compete clause reported having all three of the
other restrictive employment covenants 74.7% of
the time). However, a key limitation of the
Payscale.com survey is that it is a convenience
sample of individuals who visited Payscale com
during the time period of the survey and is
therefore unlikely to be fully representative of the
U.S. working population. Id. at 13. While weighting
based on demographics helps, it does not fully
mitigate this concern.
43 The final survey sample contained 11,505
responses, representing individuals from nearly
every demographic in the labor force. Id. at 58.
44 Id. at 63.
45 Id.
46 Michael Lipsitz & Evan Starr, Low-Wage
Workers and the Enforceability of Noncompete
Agreements, 68 Mgmt. Sci. 143, 144 (2021)
(analyzing data from the Starr, Prescott, & Bishara
survey).
47 Starr, Prescott, & Bishara, supra note 42 at 81.
48 Donna S. Rothstein & Evan Starr, Mobility
Restrictions, Bargaining, and Wages: Evidence from
the National Longitudinal Survey of Youth 1997
(2021), https://papers.ssrn.com/sol3/papers.cfm?
abstract_id=3974897.
49 U.S. Bureau of Labor Statistics, NLSY97 Data
Overview, https://www.bls.gov/nls/nlsy97.htm.

3486 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
directed solely at calculating the
prevalence of non-compete clauses.
Using this data, Rothstein and Starr
estimate the prevalence of non-compete
clauses to be 18%, which is comparable
to the number estimated by Starr,
Prescott, and Bishara.50
Finally, four occupations have been
studied individually: executives,
physicians, hair stylists, and electrical
and electronics engineers. Both Shi
(2021) and Kini et al. (2021) estimate
prevalence of non-compete clauses for
executives. Shi (2021) finds the
proportion of executives working under
a non-compete clause rose from ‘‘57%
in the early 1990s to 67% in the mid-
2010s.’’ 51 Kini et al. (2021) find that
62% of CEOs worked under a non-
compete clause between 1992 and
2014.52 Lavetti et al. (2020) find 45% of
physicians worked under a non-
compete clause in 2007.53 In a survey of
independent hair salon owners, Johnson
and Lipsitz (2021) find 30% of hair
stylists worked under a non-compete
clause in 2015.54 Finally, in a survey of
electrical and electronic engineers, Marx
(2011) finds that 43% of respondents
signed a non-compete clause.55
Some observers have stated that the
use of non-compete clauses by
employers appears to have increased
over time.56 However, there is no
consistent data available on the
prevalence of non-compete clauses over
time.
While many workers are bound by
non-compete clauses, many workers do
not know whether their non-compete
clause is legally enforceable or not. As
part of their 2014 survey, Starr et al.
50 Rothstein & Starr, supra note 48 at 7.
51 Liyan Shi, Optimal Regulation of Noncompete
Contracts 27 (2022), https://static1.squarespace.
com/static/59e19b282278e7ca5b9ff84f/t/
626658ffb73adb2959bd4371/1650874624095/
noncompete_shi.pdf.
52 Omesh Kini, Ryan Williams, & Sirui Yin, CEO
Noncompete Agreements, Job Risk, and
Compensation, 34 Rev. Fin. Stud. 4701, 4707
(2021).
53 Kurt Lavetti, Carol Simon, & William D. White,
The Impacts of Restricting Mobility of Skilled
Service Workers Evidence from Physicians, 55 J.
Hum. Res. 1025, 1042 (2020).
54 Matthew S. Johnson & Michael Lipsitz, Why
Are Low-Wage Workers Signing Noncompete
Agreements?, 57 J. Hum. Res. 689, 700 (2022).
55 Matt Marx, The Firm Strikes Back: Non-
Compete Agreements and the Mobility of Technical
Professionals, 76Am. Socio. Rev. 695, 702 (2011).
Calculated as 92.60% who signed a non-compete
clause of the 46.80% who were asked to sign a non-
compete clause.
56 See, e.g., Rachel Arnow-Richman, Cubewrap
Contracts and Worker Mobility: The Dilution of
Employee Bargaining Power via Standard Form
Noncompetes, 2006 Mich. St. L. Rev. 963, 981 n.59;
John W. Lettieri, American Enterprise Institute,
Policy Brief, A Better Bargain: How Noncompete
Reform Can Benefit Workers and Boost Economic
Dynamism (December 2020) at 2.
asked surveyed individuals ‘‘Are
noncompetes enforceable in your state?’’
Of the respondents, 37% indicated that
they did not know whether or not their
non-compete clause was enforceable.57
Additionally, 11% of individuals were
misinformed: they believed that non-
compete clauses were enforceable in
their state when they were not, or they
believed that non-compete clauses were
not enforceable when they were.58
Starr et al. also find that only 10.1%
of workers with non-compete clauses
report bargaining over it.59
Additionally, only 7.9% report
consulting a lawyer, and only 11.4% of
respondents thought that they still
would have been hired if they had
refused to sign the non-compete
clause.60 Marx finds that only 30.5% of
electrical engineers who signed non-
compete clauses were asked to sign
prior to accepting their job offer, and
47% of non-compete clause signers
were asked to sign on or after their first
day of work.61
b. Earnings—Effects on Workers Across
the Labor Force
By inhibiting optimal matches from
being made between employers and
workers across the labor force, non-
compete clauses reduce the earnings of
workers. Several studies have found that
increased enforceability of non-compete
clauses reduces workers’ earnings across
the labor market generally and for
specific types of workers.
Each of the studies described below
analyzes the effects of non-compete
clause enforceability on earnings. While
different studies have defined
enforceability of non-compete clauses in
slightly different ways, each uses
enforceability as a proxy for the chance
that a given non-compete clause will be
enforced.62
These studies use ‘‘natural
experiments’’ resulting from changes in
state law to assess how changes in the
enforceability of non-compete clauses
affect workers’ earnings. The use of a
natural experiment allows for the
57 J.J. Prescott & Evan Starr, Subjective Beliefs
About Contract Enforceability 10 (2022), https://
papers.ssrn.com/sol3/papers.cfm?abstract_
id=3873638.
58 Id. at 11.
59 Starr, Prescott, & Bishara, supra note 42, at 72.
60 Id.
61 Marx (2011), supra note 55 at 706. Forty-seven
percent is calculated as the sum of 24.43% and
22.86%, the respective percentage of requests that
were made on the first day or after the first day at
the company.
62 All the studies described below rely on twelve
concepts of enforceability based on Malsberger’s
‘‘Non-Compete Clauses: A State-by-State Survey’’
and Kini et al. supplemented with data from Beck,
Reed, and Riden LLP’s state-by-state survey of non-
compete clauses.
inference of causal effects, since the
likelihood that other variables are
driving the outcomes is minimal.
First, a study conducted by Matthew
Johnson, Kurt Lavetti, and Michael
Lipsitz finds that decreasing non-
compete clause enforceability from the
approximate enforceability level of the
fifth-strictest state to that of the fifth-
most-lax state would increase workers’
earnings by 3–4%.63 Johnson, Lavetti,
and Lipsitz also estimate that a
nationwide ban on non-compete clauses
would increase average earnings by 3.3–
13.9%.64 The authors also find that non-
compete clauses limit the ability of
workers to leverage favorable labor
markets to receive greater pay: when
non-compete clauses are more
enforceable, workers’ earnings are less
responsive to low unemployment rates
(which workers may typically leverage
to negotiate pay raises).65
The second study of the effects of
non-compete clause enforceability on
earnings, conducted by Evan Starr,
estimates that if a state that does not
enforce non-compete clauses shifted its
policy to that of the state with an
average level of enforceability, earnings
would fall by about 4%.66 Unlike many
of the other studies described here, this
study does not use a change in
enforceability of non-compete clauses to
analyze the impact of enforceability.
Rather, it examines the differential
impact of enforceability on workers in
occupations which use non-compete
clauses at a high rate versus workers in
occupations which use non-compete
clauses at a low rate. While the
Commission believes that this research
design may be less informative with
respect to the proposed rule than
designs which examine changes in
enforceability, the study’s estimated
effects are in line with the rest of the
literature.
The third study, conducted by
Michael Lipsitz and Evan Starr,
estimates that when Oregon stopped
enforcing non-compete clauses for
workers who are paid hourly, their
wages increased by 2–3%, relative to
workers in states which did not
experience legal changes. The study also
found a greater effect (4.6%) on workers
63 Matthew S. Johnson, Kurt Lavetti, & Michael
Lipsitz, The Labor Market Effects of Legal
Restrictions on Worker Mobility 2 (2020), https://
papers.ssrn.com/sol3/papers.cfm?abstract_
id=3455381.
64 Id.
65 Id. at 36.
66 Evan Starr, Consider This: Training, Wages,
and the Enforceability of Non-Compete Clauses, 72
I.L.R. Rev. 783, 799 (2019).

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3487
in occupations that used non-compete
clauses at a relatively high rate.67
The fourth study, conducted by
Natarajan Balasubramanian, Jin Woo
Chang, Mariko Sakakibara, Jagadeesh
Sivadasan, and Evan Starr, found that
when Hawaii stopped enforcing non-
compete clauses for high-tech workers,
earnings of new hires increased by
about 4%.68
The fifth and sixth studies both show
that enforceable non-compete clauses
reduce earnings for executives. One
study, by Mark Garmaise, finds that
decreased enforceability of non-compete
clauses increases executives’ earnings
by 12.7%.69 Another study, by Omesh
Kini, Ryan Williams, and David Yin,
finds that decreased enforceability of
non-compete clauses led to lower
earnings for CEOs when use of non-
compete clauses is held constant.
However, the study also finds use of
non-compete clauses decreases when
non-compete clause enforceability
decreases. When that relationship is
taken into account, decreased
enforceability results in greater earnings
for CEOs. For example, if the state
which enforces non-compete clauses
most strictly (Florida) hypothetically
moved to a policy of non-enforcement,
then a CEO who had a non-compete
clause prior to the policy change would
experience an estimated 11.4% increase
in their earnings, assuming their non-
compete clause was dropped.70
Among the studies listed above,
Johnson, Lavetti, and Lipsitz likely has
the broadest coverage. The study spans
the years 1991 to 2014, examines
workers across the labor force, and uses
all known common law and statutory
changes in non-compete clause
enforceability to arrive at its estimates.
The study by Starr also covers the entire
labor force, from 1996 to 2008.
However, the Starr study is only able to
compare effects for occupations that use
non-compete clauses at a high rate to
those that use them at a low rate. The
next two studies cover just one legal
67 Lipsitz & Starr, supra note 46 at 143.
68 Natarajan Balasubramanian, Jin Woo Chang,
Mariko Sakakibara, Jagadeesh Sivadasan, & Evan
Starr, Locked In? The Enforceability of Non-
Compete Clauses and the Careers of High-Tech
Workers, 57 J. Hum. Res. S349, S349 (2022).
69 Mark J. Garmaise, Ties that Truly Bind:
Noncompetition Agreements, Executive
Compensation, and Firm Investment, 27 J.L., Econ.,
& Org. 376, 403 (2011). The reduction in earnings
is calculated as e 	1, where 	1.3575 is	1.3575*0.1
taken from Table 4.
70 Kini, Williams, & Yin, supra note 52 at 4731.
The 11.4% increase is calculated as e X 1, where
X is calculated as 9 times the coefficient on CEO
Noncompete × HQ Enforce (0.047), where 9 is the
enforceability index in Florida, plus the coefficient
on CEO Noncompete ( 0.144), plus 9 times the
coefficient on HQ Enforce ( 0.043).
change, and only a subset of the labor
force: hourly workers in Oregon, in the
case of Lipsitz and Starr, and high-tech
workers in Hawaii, in the case of
Balasubramanian et al. Finally, while
the studies conducted by Garmaise and
Kini et al. examine multiple legal
changes, they focus solely on
executives.
One limitation of studies of
enforceability alone—i.e., studies which
do not consider the use of non-compete
clauses—is that it is difficult to
disentangle the effects of increased
enforceability on workers who are
subject to non-compete clauses and
workers who are not subject to non-
compete clauses. In other words, since
effects are observed across the labor
force (or some subset of it), they include
both effects on workers with and
without non-compete clauses. However,
due to the research cited in the next
subsection—indicating non-compete
clauses reduce earnings for workers who
are not subject to non-compete
clauses—the Commission believes it is
reasonable to conclude based on
contextual evidence that the labor-force-
wide effects described in the studies
above include effects on both workers
with and without non-compete clauses.
Three additional studies examine the
association between non-compete clause
use—rather than enforceability—and
earnings. Using the 2014 survey
described in Part II.B.1.a, Starr et al.
find that the use of non-compete clauses
is associated with 6.6% higher earnings
in the model including the most control
variables among those they observe.71
Using the Payscale.com data,
Balasubramanian et al. find that while
non-compete clause use is associated
with 2.1–8.2% greater earnings
(compared with individuals with no
post-contractual restrictions), this
positive association is due to non-
compete clauses often being bundled
with non-disclosure agreements.
Compared with individuals only using
non-disclosure agreements, use of non-
compete clauses is associated with a
3.0–7.3% decrease in earnings, though
the authors do not disentangle this
effect from the effects of use of non-
solicitation and non-recruitment
provisions.72 Finally, Lavetti et al. find
that use of non-compete clauses among
physicians is associated with greater
earnings (by 14%) and greater earnings
growth.73 (The Commission notes,
however, this study does not consider
71 Starr, Prescott, & Bishara, supra note 42 at 75.
72 Balasubramanian, Starr, & Yamaguchi, supra
note 42 at 40. The percentage range is calculated
as e 	1 and e 	1, respectively.	0.030 	0.076
73 Lavetti, Simon, & White, supra note 53 at 1051.
The increase in earnings is calculated as e0.131 1.
how changes in non-compete clause
enforceability affect physicians’
earnings. As described below in the
cost-benefit analysis for the proposed
rule, the Commission estimates the
proposed rule may increase physicians’
earnings, though the study does not
allow for a precise calculation.74)
However, the Commission does not
believe that studies examining the
association between non-compete clause
use—rather than enforceability—and
earnings are sufficiently probative of the
effects of non-compete clauses on
earnings. The Commission’s concern is
that non-compete clause use and
earnings may both be determined by one
or more confounding factors. It may be
the case, for example, that employers
who rely most on trade secrets both pay
more and use non-compete clauses at a
high rate (which would not necessarily
be captured by the control variables
observed in studies of non-compete
clause use). This means these studies do
not necessarily inform how restricting
the use of non-compete clauses through
a rule would impact earnings. This
methodological limitation contrasts
with studies examining enforceability of
non-compete clauses, in which changes
in enforceability are ‘‘natural
experiments’’ that allow for the
inference of causal effects, since the
likelihood that other variables are
driving the outcomes is minimal. A
‘‘natural experiment’’ refers to some
kind of change in the real world that
allows researchers to study the impact
of the change on an outcome. In a
natural experiment, the change is
effectively random, uninfluenced by
other factors which could have
simultaneously affected the outcome. In
such situations, it is therefore most
likely the change itself caused any
impact that is observed on the
outcomes.
The belief that studies of non-compete
clause use do not reflect causal
estimates is shared by the authors of at
least one of the studies of non-compete
clause use. As noted in Starr et al., ‘‘Our
analysis of the relationships between
noncompete use and labor market
outcomes . . . is best taken as
descriptive and should not be
interpreted causally.’’ 75 As a result, the
Commission gives these studies
minimal weight. The study of
physicians conducted by Lavetti et al.
partially mitigates this concern by
comparing earnings effects in high-
versus low-enforceability states, though
this analysis compares only California
and Illinois, meaning that it is
74 See infra Part VII.B.1.a.ii.
75 Starr, Prescott, & Bishara, supra note 42 at 73.

3488 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
impossible to disentangle underlying
differences in those two states from the
effects of non-compete clause
enforceability.
c. Earnings—Effects on Workers Not
Covered by Non-Compete Clauses
As described above, non-compete
clauses negatively affect competition in
labor markets, thereby inhibiting
optimal matches from being made
between employers and workers across
the labor force. As a result, non-compete
clauses reduce earnings not only for
workers who are subject to non-compete
clauses, but also for workers who are
not subject to non-compete clauses.
Two studies show non-compete
clauses reduce earnings for workers who
are not subject to non-compete clauses.
The first study, a 2019 study of the
external effects of non-compete clauses
conducted by Evan Starr, Justin Frake,
and Rajshree Agarwal, analyzed workers
without non-compete clauses who
worked in states and industries in
which non-compete clauses were used
at a high rate.76 They find that, when
the use of non-compete clauses in a
given state and industry combination
increases by 10%, the earnings of
workers who do not have non-compete
clauses, but who work in that same state
and industry, go down by about 6.12%
more when that state has an average
enforceability level, compared with a
state which does not enforce non-
compete clauses.77 In effect, this study
finds when the use of non-compete
clauses by employers increases, that
drives down wages for workers who do
not have non-compete clauses but who
work in the same state and industry.
This study also finds this effect is
stronger where non-compete clauses are
more enforceable.
The Commission notes that, similar to
some of the studies described above,
this study relies on use of non-compete
clauses, as well as cross-sectional
differences in enforceability of non-
compete clauses, to arrive at their
conclusions. While this approach calls
into question the causal relationship
outlined in the study, the authors
employ tests to increase confidence in
the causal interpretation; however, the
tests rely on what data the authors have
available, and therefore cannot rule out
explanations outside of the scope of
their data. This study also analyzes the
effect of non-compete clause use for
certain workers on workers in a
different firm, meaning that factors
76 Evan Starr, Justin Frake, & Rajshree Agarwal,
Mobility Constraint Externalities, 30 Org. Sci. 961,
6 (2019).
77 Id. at 11.
simultaneously driving non-compete
clause use and outcomes within a
certain firm will not break the causal
chain identified in the study.
Starr, Frake, and Agarwal show the
reduction in earnings (and mobility,
discussed below) is due to a reduction
in the rate of the arrival of job offers.
Individuals in state/industry
combinations which use non-compete
clauses at a high rate do not receive job
offers as frequently as individuals in
state/industry combinations where non-
compete clauses are not frequently
used.78 The authors also demonstrate
decreased mobility and earnings are not
due to increased job satisfaction (i.e., if
workers are more satisfied with their
jobs, they may be less likely to change
jobs, and more likely to accept lower
pay).79 Finally, they show that
decreased mobility and earnings are not
because workers are searching for jobs
less frequently, suggesting that job
openings and firm behavior matter more
to the underlying mechanism.80
The second study, conducted by
Johnson, Lavetti, and Lipsitz, isolates
the impact of a state’s enforceability
policy on workers not directly affected
by that policy to demonstrate non-
compete clauses affect not just the
workers subject to those non-compete
clauses, but the broader labor market as
well. In particular, the study finds that
increases in non-compete clause
enforceability in one state have negative
impacts on workers’ earnings in
bordering states, and the effects are
nearly as large as the effects in the state
in which enforceability changed.
Johnson, Lavetti, and Lipsitz estimate
that the impact on earnings of a law
change in one state on workers just
across that state’s border is 87% as great
as for workers in the state in which the
law was changed (the effect tapers off as
the distance to the bordering state
increases).81 When a law change in one
state decreases workers’ earnings in that
state by 4%, that would therefore mean
that workers just across the border (i.e.,
workers who share a commuting zone—
a delineation of a local economy 82—but
who live in another state) would
experience decreased earnings of 3.5%.
The authors conclude that, since the
workers across the border are not
78 Id. at 10.
79 Id. at 13.
80 Id.
81 Johnson, Lavetti, & Lipsitz, supra note 63 at 51.
Eighty seven percent is calculated as the coefficient
on the donor state NCA score ( .181) divided by
the coefficient on own state NCA score ( .207).
82 See U.S. Econ. Rsch. Serv., Commuting Zones
and Labor Market Areas, https://www.ers.usda.gov/
data-products/commuting-zones-and-labor-market-
areas/.
directly affected by the law change (i.e.,
contracts that they have signed do not
become more or less enforceable), this
effect must be due to changes in the
local labor market.83
d. Earnings—Distributional Effects
There is evidence that non-compete
clauses increase racial and gender wage
gaps by disproportionately reducing the
wages of women and non-white
workers. This may be, for example,
because firms use the monopsony power
which results from use of non-compete
clauses as a means by which to wage
discriminate. The study by Johnson,
Lavetti, and Lipsitz finds that while
earnings of white men would increase
by about 3.2% if a state’s enforceability
moved from the fifth-strictest to the fifth
most lax, the comparable earnings
increase for workers in other
demographic groups would be 3.7–
7.7%, depending on the characteristics
of the group (though it is not clear from
the study whether or not the differences
are statistically significant).84 The
authors estimate that banning non-
compete clauses nationwide would
close racial and gender wage gaps by
3.6–9.1%.85
e. Job Creation
While non-compete clauses may
theoretically incentivize firms to create
jobs by increasing the value associated
with any given worker covered by a
non-compete clause, the evidence is
inconclusive. One study, by Gerald
Carlino, estimates the job creation rate
at startups increased by 7.8% when
Michigan increased non-compete clause
enforceability.86 However, the job
creation rate calculated in this study is
the ratio of jobs created by startups to
overall employment in the state:
therefore, the job creation rate at
startups may rise either because the
number of jobs created by startups rose,
or because employment overall fell. The
study does not investigate which of
these two factors drives the increase in
the job creation rate at startups.
Another study finds that several
increases in non-compete clause
enforceability were associated with a
1.4% increase in average per-firm
employment at new firms (though not
necessarily total employment).87 In this
83 Johnson, Lavetti, & Lipsitz, supra note 63 at 30.
84 Id. at 38.
85 Id.
86 Gerald A. Carlino, Do Non-Compete Covenants
Influence State Startup Activity? Evidence from the
Michigan Experiment at 16 (Fed. Reserve Bank of
Phila. Working Paper 21–26, 2021).
87 Evan Starr, Natarajan Balasubramanian, &
Mariko Sakakibara, Screening Spinouts? How
Noncompete Enforceability Affects the Creation,

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3489
study, the authors attribute the increase
in average employment to a change in
the composition of newly founded
firms. The increases in non-compete
clause enforceability prevented the
entry of relatively small startups which
would otherwise have existed.
Therefore, the firms which entered in
spite of increases in non-compete clause
enforceability had more workers on
average: this increased the average job
creation rate at new firms, because the
average entering firm was relatively
larger. However, if the mechanism
identified by the authors is correct,
increases in enforceability generate
fewer total jobs, because the same
number of large firms may enter
(regardless of non-compete clause
enforceability), but fewer small firms
enter.
A similar mechanism may explain the
results in both studies above. If that is
indeed the case, then an increase in
average per-firm employment among
startups is not a positive effect of non-
compete clause enforceability: instead,
it could actually represent a negative
effect, since non-compete clauses
prevent small firms from existing in the
first place, and overall job creation may
decrease. The Commission therefore
believes, with respect to job creation
rates, the evidence is inconclusive.
2. Product and Service Markets
In addition to analyzing how non-
compete clauses affect competition in
labor markets, researchers have also
analyzed whether non-compete clauses
affect competition in markets for
products and services. The available
evidence indicates the use of non-
compete clauses interferes with
competitive conditions in product and
service markets as well.
The adverse effects of non-compete
clauses on product and service markets
likely result from reduced voluntary
labor mobility. Non-compete clauses
directly impede voluntary labor
mobility by restricting workers subject
to non-compete clauses from moving to
new jobs covered by their non-compete
clause. Since non-compete clauses
prevent some job openings from
occurring (by keeping workers in their
jobs), they also prevent workers who are
not subject to non-compete clauses from
finding new jobs (since the new jobs are
already occupied by workers with non-
compete clauses).
Influenced by Ronald Gilson’s
research positing that high-tech clusters
in California may have been aided by
increased labor mobility because non-
Growth, and Survival of New Firms, 64 Mgmt. Sci.
552, 561 (2018).
compete clauses are generally
unenforceable in that state,88 many
studies have examined how non-
compete clauses affect labor mobility.
Even literature primarily focused on
other outcomes has examined labor
mobility as a secondary outcome.
Across the board, all studies have found
decreased rates of mobility, measured
by job separations, hiring rates, job-to-
job mobility, implicit mobility defined
by job tenure, and within- and between-
industry mobility. We briefly describe
each of these studies in turn.
A 2006 study conducted by Fallick,
Fleischman, and Rebitzer supported
Gilson’s hypothesis by showing that
labor mobility in information
technology industries in metropolitan
statistical areas (MSAs) in California
was 56% higher than in comparison
MSAs outside California. They note,
however, the estimates may not be fully
(or at all) attributable to non-compete
clause enforceability. Although the
Commission therefore does not find this
particular study to be sufficiently
probative of the relationship between
non-compete clauses and labor mobility,
its qualitative findings are in line with
the rest of the literature.89
To estimate the impacts of non-
compete clause enforceability in a
fashion that may more plausibly
attribute causality to the relationship, in
2009, Marx, Strumsky, and Fleming
examined the impact on labor mobility
of Michigan’s switch to enforcing non-
compete clauses. They found that
Michigan’s increase in enforceability led
to an 8.1% decline in the mobility of
inventors.90
In 2011, Mark Garmaise examined
how a suite of changes in non-compete
clause enforceability affected labor
mobility. Garmaise found executives
made within-industry job changes 47%
more often, between-industry job
changes 25% more often (though this
result was not statistically significant),
and any job change 35% more often
when non-compete clauses were less
enforceable.91
A 2019 study by Jessica Jeffers uses
several legal changes to analyze the
impact of non-compete clauses on
workers’ mobility, finding that
88 Ronald J. Gilson, The Legal Infrastructure of
High Technology Industrial Districts: Silicon Valley,
Route 128, and Non-Compete Clauses, 74 N.Y.U. L.
Rev. 575 (1999).
89 Bruce Fallick, Charles A. Fleischman, & James
B. Rebitzer, Job-Hopping in Silicon Valley: Some
Evidence Concerning the Microfoundations of a
High-Technology Cluster, 88 Rev. Econ. & Statistics
472, 477 (2006).
90 Matt Marx, Deborah Strumsky, & Lee Fleming,
Mobility, Skills, and the Michigan Non-Compete
Experiment, 55 Mgmt. Sci. 875, 884 (2009).
91 Garmaise, supra note 69 at 398.
decreases in non-compete clause
enforceability were associated with an
8.6% increase in departure rates of
workers, and a 15.4% increase in
within-industry departure rates of
workers.92
Evan Starr’s 2019 study comparing
workers in occupations which use non-
compete clauses at a high versus low
rate found that a state moving from
mean enforceability to no enforceability
would cause a decrease in employee
tenure for workers in high-use
occupations of 8.2%, compared with
those in low-use occupations. Here,
tenure serves as a proxy for mobility,
since tenure is the absence of prior
mobility.93
Returning to an examination of
executives, Liyan Shi’s 2020 paper
qualitatively confirmed Garmaise’s
results, showing that executives with
enforceable non-compete clauses were
1.8 percentage points less likely to
separate from their employers,
compared with executives without
enforceable non-compete clauses.94
Starr, Prescott, and Bishara’s 2020
study found that having a non-compete
clause was associated with a 35%
decrease in the likelihood a worker
would leave for a competitor.95
However, they also found enforceability
does not impact this prediction, in
contrast with prior studies. Digging
deeper into the mechanism, they find
that what matters is the worker’s belief
about the likelihood their employer
would seek to enforce a non-compete
clause in court. Workers who did not
believe employers would enforce non-
compete clauses in court were more
likely to report they would be willing to
leave for a competitor.96 This result
confirms the need to ensure that
workers are aware of the proposed rule,
though it suffers from the same
limitations as do previously discussed
studies of the impacts of non-compete
clause use, rather than enforceability:
that studies of use are not causally
interpretable, since they may conflate
the effects of factors which cause use for
the effects of use itself.
Two recent studies examined
subgroups of the population affected by
92 Jessica Jeffers, The Impact of Restricting Labor
Mobility on Corporate Investment and
Entrepreneurship 22 (2019), https://
papers.ssrn.com/sol3/papers.cfm?abstract_
id=3040393.
93 Starr, supra note 66 at 798. The value is
calculated as 8.2% = 0.56/6.46, where 0.56 is the
reported impact on tenure and 6.46 is mean tenure
in the sample.
94 Shi, supra note 51 at 26.
95 Evan Starr, J.J. Prescott, & Norm Bishara, The
Behavioral Effects of (Unenforceable) Contracts, 36
J.L., Econ., & Org. 633, 652 (2020).
96 Id. at 664.

3490 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
state law changes. Balasubramanian et
al., in 2022, focused on high-tech
workers whose non-compete clauses
were banned in Hawaii, and Lipsitz and
Starr, in 2022, focused on hourly
workers whose non-compete clauses
were banned in Oregon. The former
found that the ban increased mobility by
12.5% in the high-tech sector,97 while
the latter found that mobility of hourly
workers increased by 17.3%.98
Finally, a 2022 study by Johnson,
Lavetti, and Lipsitz examined the
impact on labor mobility of all legal
changes after 1991 across the entire
labor force. They found moving from the
enforceability level of the fifth strictest
state to that of the fifth most lax state
causes a 6.0% increase in job-to-job
mobility in industries using non-
compete clauses at a high rate.99
Furthermore, they found when a state
changes its non-compete clause
enforceability in that fashion, workers
in neighboring states experience 4.8%
increases in mobility as measured by job
separations, and 3.9% increases as
measured by hiring rates, though neither
result was statistically significant.100
As described below in Part IV.A.1.a.ii,
the Commission does not view reduced
labor mobility from non-compete
clauses—in and of itself—as evidence
non-compete clauses negatively affect
competition in product and service
markets. Instead, reduced labor mobility
is best understood as the primary driver
of effects in product and service markets
that the Commission is concerned
about. These effects are described
below.
a. Consumer Prices and Concentration
There is evidence that non-compete
clauses increase consumer prices and
concentration in the health care sector.
There is also evidence non-compete
clauses increase industrial
concentration more broadly. Non-
compete clauses may have these effects
by inhibiting entrepreneurial ventures
(which could otherwise enhance
competition in goods and service
markets) or by foreclosing competitors’
access to talented workers.
One study, by Naomi Hausman and
Kurt Lavetti, finds increased
concentration, as measured by the
Herfindahl-Hirschman Index (HHI), at
the firm level 101 and increased final
97 Balasubramanian et al., supra note 68 at S351.
98 Lipsitz & Starr, supra note 46 at 157.
99 Johnson, Lavetti, & Lipsitz, supra note 63 at 21.
100 Id. at 76.
101 Naomi Hausman & Kurt Lavetti, Physician
Practice Organization and Negotiated Prices:
Evidence from State Law Changes, 13 a.m. Econ. J.
Applied Econ. 258, 284 (2021). Note that Hausman
and Lavetti find decreased HHI at the establishment
goods prices 102 as the enforceability of
non-compete clauses increases.
Hausman and Lavetti’s study focuses on
physician markets, showing that while
non-compete clauses allow physician
practices to allocate clients more
efficiently across physicians, this comes
at the cost of greater concentration and
prices for consumers. Generally, greater
concentration may or may not lead to
greater prices in all situations and may
arise for reasons which simultaneously
cause higher prices (indicating,
therefore, a noncausal relationship
between concentration and prices). In
this case, the authors claim that
researching the direct link between
changes in law governing non-compete
clauses and changes in concentration
allows them to identify a causal chain
starting with greater enforceability of
non-compete clauses, which leads to
greater concentration, and higher
consumer prices.
While there is no additional direct
evidence on the link between non-
compete clauses and consumer prices,
another study, by Michael Lipsitz and
Mark Tremblay, shows increased
enforceability of non-compete clauses at
the state level increases concentration,
as measured by an employment-based
HHI.103 Lipsitz and Tremblay theorize
non-compete clauses inhibit
entrepreneurial ventures which could
otherwise enhance competition in goods
and service markets, and show that the
potential for harm is greatest in exactly
those industries in which non-compete
clauses are likely to be used at the
highest rate.104 If the general causal link
governing the relationship between
enforceability of non-compete clauses,
concentration, and consumer prices acts
similarly to that identified in the study
by Hausman and Lavetti, then it is
plausible that increases in concentration
identified by Lipsitz and Tremblay
would lead to higher prices in a broader
set of industries.
In many settings, it is also
theoretically plausible that increases in
worker earnings from restricting non-
compete clauses may increase consumer
prices by raising firms’ costs (though
there is countervailing evidence,
level (where an establishment is a physical location,
and a firm is a company which may own multiple
establishments). For the purposes of consumer
outcomes such as a price or product quality, the
relevant measure of concentration is at the firm
level, since firms are unlikely to compete against
themselves on price or quality.
102 Id. at 280.
103 Michael Lipsitz & Mark Tremblay,
Noncompete Agreements and the Welfare of
Consumers 6 (2021), https://papers.ssrn.com/sol3/
papers.cfm?abstract_id=3975864.
104 Id. at 3.
especially in goods manufacturing 105).
However, we are not aware of empirical
evidence that this occurs, and there are
also countervailing forces—such as the
impacts on concentration described
above and positive impacts on
innovation 106—that would tend to
decrease consumer prices. Additionally,
the greater wages observed for workers
where non-compete clauses are less
enforceable may be due to better
worker-firm matching, which could
simultaneously increase wages and
increase productivity, which could lead
to lower prices.
In addition, the only study of how
non-compete clauses affect prices—the
Hausman and Lavetti study described
above—finds decreased non-compete
clause enforceability decreases prices in
the healthcare market, rather than
increasing them. The study notes that,
in theory, changes in non-compete
clause enforceability could impact
physicians’ earnings, which could
subsequently pass through to prices in
healthcare markets. However, the
authors show that, where prices
decrease due to decreased non-compete
clause enforceability, labor cost pass-
through is not driving price decreases.
As the authors note, if price decreases
associated with non-compete clause
enforceability decreases were due to
pass-through of decreases in physicians’
earnings, then the most labor-intensive
procedures would likely experience the
greatest price decreases when
enforceability decreased. However, they
find the opposite: there is little to no
effect on prices for the most labor-
intensive procedures, in contrast with
procedures which use relatively less
labor. As the authors explain, this
shows that decreases in healthcare
prices associated with decreases in non-
compete clause enforceability are not
due to pass-through of lower labor
costs.107
b. Foreclosing Competitors’ Ability To
Access Talent
There is evidence that non-compete
clauses foreclose the ability of
competitors to access talent by
effectively forcing future employers to
buy out workers from their non-compete
clauses if they want to hire them. Firms
must either make inefficiently high
payments to buy workers out of non-
compete clauses with a former
employer, which leads to deadweight
economic loss, or forego the payment—
105 Sebastian Heise, Fatih Karahan, & Ays¸egu¨ l
S¸ahin The Missing Inflation Puzzle: The Role of the
Wage-Price Pass-Through, 54 J. Money, Credit &
Banking 7 (2022).
106 See infra Part II.B.2.d.
107 Hausman & Lavetti, supra note 101 at 278.

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3491
and, consequently, the access to the
talent the firm seeks. Whatever choice a
firm makes, its economic outcomes in
the market are harmed, relative to a
scenario in which no workers are bound
by non-compete clauses.
Liyan Shi studies this effect in a 2022
paper. This paper finds non-compete
clauses are used to ensure that potential
new employers of executives make a
buyout payment to the executive’s
current employer.108 Such a mechanism
could be tempered by the ability of a
labor market to provide viable
alternative workers for new or
competing businesses. However, when a
particular type of labor is somewhat
scarce, when on-the-job experience
matters significantly, or when frictions
prevent workers from moving to new
jobs, there is no way for the market to
fill the gap created by non-compete
clauses. By studying CEOs, who are
difficult to replace and relatively scarce,
Shi’s paper shows that non-compete
clauses foreclose the ability of
competitors to access talent by
effectively forcing them to make
inefficiently high buyout payments. Shi
ultimately concludes that ‘‘imposing a
complete ban on noncompete clauses
would be close to implementing the
social optimum.’’ 109
c. New Business Formation
The weight of the evidence indicates
non-compete clauses likely have a
negative impact on new business
formation. Three studies show that non-
compete clauses and increased
enforceability of non-compete clauses
reduce entrepreneurship, new business
formation, or both. A fourth study also
finds that non-compete clauses reduce
the rate at which men and women found
new startups, though the result is not
statistically significant for men. A fifth
study finds mixed effects which likely
support the theory that non-compete
clauses reduce new business formation,
and a sixth study finds no effect.
New business formation may refer to
entrepreneurs creating new businesses
from scratch or to businesses being spun
off from existing businesses. New
business formation increases
competition first by bringing new ideas
to market, and second, by forcing
incumbent firms to respond to new
firms’ ideas instead of stagnating. New
businesses disproportionately create
new jobs and are, as a group, more
resilient to economic downturns.110
108 Shi, supra note 51.
109 Id. at 35.
110 See, e.g., The Importance of Young Firms for
Economic Growth, Policy Brief, Ewing Marion
Kauffman Foundation (Sept. 24, 2015).
Recent evidence that new business
formation is trending downward has led
to concerns that productivity and
technological innovation are not as
strong as they would have been had new
business formation remained at higher
levels.111 Non-compete clauses restrain
new business formation by preventing
workers subject to non-compete clauses
from starting their own businesses. In
addition, firms are more willing to enter
markets in which they know there are
potential sources of skilled and
experienced labor, unhampered by non-
compete clauses.
Three studies show that non-compete
clauses and increased enforceability of
non-compete clauses reduce
entrepreneurship and new business
formation. First, Sampsa Samila and
Olav Sorenson, in a 2011 study,
examined the differential impacts of
venture capital on business formation,
patenting, and employment growth.
They found when non-compete clauses
are more enforceable, rates of
entrepreneurship, patenting, and
employment growth slow. They find
that a 1% increase in venture capital
funding increased the number of new
firms by 0.8% when non-compete
clauses were enforceable, and by 2.3%
when non-compete clauses were not
enforceable.112 Similarly, a 1% increase
in the rate of venture capital funding
increased employment by 0.6% when
non-compete clauses were enforceable,
versus 2.5% where non-compete clauses
were not enforceable.113
The second study, conducted by
Jessica Jeffers in 2019, uses several state
law changes to show a decline in new
firm entry when non-compete clauses
are more enforceable. When non-
compete clause enforceability is made
stricter (based on the relatively
meaningful changes examined in her
study), the entry rate of new firms
decreased by 10% in the technology
sector and the professional, scientific,
and technical services sector.114
The third study, conducted by Evan
Starr, Natarajan Balasubramanian, and
Mariko Sakakibara in 2018, finds that
the rate of within-industry spinouts
(WSOs) decreases by 0.13 percentage
points (against a mean of 0.4%) when
non-compete clause enforceability
111 See, e.g., Cong. Budget Off., Federal Policies in
Response to Declining Entrepreneurship (December
2020).
112 Sampsa Samila & Olav Sorenson, Noncompete
Covenants: Incentives to Innovate or Impediments
to Growth, 57 Mgmt. Sci. 425, 432 (2011). The
values are calculated as 0.8% = e 0.00755 1 and
2.3% = e 0.00755+0.0155 1, respectively.
113 Id. at 433. The values are calculated as 0.6%
= e 0.00562 1 and 2.3% = e0.00562+0.0192 1,
respectively.
114 Jeffers, supra note 92 at 32.
increases by one standard deviation.115
The study’s measured impact on the
entry rate of non-WSOs (i.e., spinoffs
into other industries) is statistically
indistinguishable from zero (0.07
percentage point increase associated
with a one standard deviation increase
in enforceability).116 WSOs have been
shown to be highly successful, on
average, when compared with typical
entrepreneurial ventures.117 By
reducing intra-industry spinoff activity,
non-compete clauses prevent
entrepreneurial activity that is likely to
be highly successful.
The fourth study, published by Matt
Marx in 2021, examines the impact of
several changes in non-compete clause
enforceability between 1991 and
2014.118 Marx finds that, when non-
compete clauses are more enforceable,
men are 46% less likely to found a rival
startup after leaving their employer
(though this result is statistically
insignificant), that women are 69% less
likely to do so, and that the difference
in the effect of non-compete clause
enforceability on founding rates
between men and women is statistically
significant.119 This study therefore
supports both the theory that non-
compete clauses inhibit new business
formation and that non-compete clauses
tend to have more negative impacts for
women than for men.
A fifth study finds mixed effects of
non-compete clause enforceability on
the entry of businesses into the State of
Florida. Hyo Kang and Lee Fleming, in
a 2020 study, examine a legal change in
Florida which made non-compete
clauses more enforceable. This study
finds that larger businesses entered the
state more frequently (by 8.5%), but
smaller businesses entered less
frequently (by 5.6%) following the
change.120 Similarly, Kang and Fleming
found that employment at large
businesses rose by 15.8% following the
change, while employment at smaller
businesses effectively did not change.121
115 Starr, Balasubramanian, & Sakakibara, supra
note 87 at 561.
116 Id. at 561.
117 For reviews of the literature, see, e.g., Steven
Klepper, Spinoffs: A Review and Synthesis, 6
European Mgmt. Rev. 159–71 (2009) and April
Franco, Employee Entrepreneurship: Recent
Research and Future Directions, in Handbook of
Entrepreneurship Research (2005) 81–96.
118 Matt Marx, Employee Non-compete
Agreements, Gender, and Entrepreneurship, Org.
Sci. (Online ahead of print) (2021).
119 Id. at 9.
120 Hyo Kang & Lee Fleming, Non-Competes,
Business Dynamism, and Concentration: Evidence
From a Florida Case Study, 29 J. Econ. & Mgmt.
Strategy 663, 673 (2020).
121 Id. at 674. The value is calculated as 15.8%
= e 0.1468 1.

3492 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
In the Commission’s view, however,
the results of this study do not
necessarily show how non-compete
clauses affect new business formation.
This study does not examine new
business formation specifically; instead,
it assesses the number of ‘‘business
entries’’ into the state. As the authors
acknowledge, many of these business
entries are not new businesses being
formed in Florida (i.e., startups), but
existing businesses that are moving to
the state.122 Because startups are almost
never large businesses, the authors’
finding that larger businesses entered
the state more frequently is much more
likely to reflect businesses moving to
the state, rather than new businesses
being formed in the state. (While a
business’s relocation to Florida may
benefit Florida, it is not net beneficial
from a national perspective, since the
business is simply moving from
somewhere else.) The authors’ finding
that increased non-compete clause
enforceability decreased the entry of
smaller businesses is more likely to
reflect an effect of non-compete clause
enforceability on new business
formation, since smaller businesses are
relatively more likely than larger
businesses to be startups.
A sixth study finds no effect of non-
compete clauses on new business
formation. A 2021 study by Gerald
Carlino analyzes the impact of a legal
change in Michigan that allowed the
courts to enforce non-compete clauses.
This study finds no significant impact
on new business formation.123
d. Innovation
The weight of the evidence indicates
non-compete clauses decrease
innovation. Innovation may directly
improve economic outcomes by
increasing product quality or decreasing
prices, or may promote competition
because successful new products and
services force competing firms to
improve their own products and
services. Non-compete clauses affect
innovation by reducing the movement
of workers between firms, which
decreases knowledge flow between
firms. Non-compete clauses also prevent
workers from starting businesses in
which they can pursue innovative new
ideas.
One study shows increased
enforceability of non-compete clauses
decreases the value of patenting, using
a variety of legal changes. Another study
shows that increased non-compete
clause enforceability decreases the rate
at which venture capital funding
122 Id. at 668.
123 Carlino, supra note 86 at 36.
increases patenting. Finally, using a
legal change in Michigan which
increased enforceability, one study
shows there were mixed effects on
patenting in terms of both quantity and
quality, but mechanical patenting (a
large part of patenting in Michigan)
increased.
The first study, a 2021 study by
Zhaozhao He, finds the value of patents,
relative to the assets of the firm,
increase by about 31% when non-
compete clause enforceability
decreases.124 In contrast to the other two
studies of innovation, the study uses the
value of patents, rather than the number
of patents, to mitigate concerns that
patenting activity may not represent
innovation, but rather substitutions of
protections (in other words, that when
non-compete clauses are made less
enforceable, firms may use patents
instead of non-compete clauses to seek
to protect sensitive information).125 The
study also analyzes the impact of
several legal changes to non-compete
clause enforceability, which means that
the results may be most broadly
applicable.
The second study, by Samila and
Sorensen, found that, when non-
compete clauses are enforceable,
venture capital induced less patenting,
by 6.6 percentage points.126 However, as
explained above, the authors note
patenting may or may not reflect the
true level of innovation, as firms may
use patenting as a substitute for non-
compete clauses where they seek to
protect sensitive information.127 The
final study of innovation, a 2021 study
by Gerald Carlino, examined how
patenting activity in Michigan was
affected by an increase in non-compete
enforceability. The study finds that
mechanical patenting increased
following the law change, but drug
patenting fell, and the quality of
computer patents fell (as measured by
citations).128 The increase in
mechanical patenting appears to have
primarily occurred approximately 14
years after non-compete clause
enforceability changed, however,
suggesting some other mechanism may
have led to the increase in patenting
activity.129 We place relatively greater
weight on studies focused on multiple
legal changes to non-compete clause
124 Zhaozhao He, Motivating Inventors: Non-
Competes, Innovation Value and Efficiency 21
(2021), https://ssrn.com/abstract=3846964. Thirty
one percent is calculated as e 0. 272 1.
125 Id. at 17.
126 Samila & Sorenson, supra note 112 at 432. The
value is calculated as 6.6% = e0.0208+0.0630 	.	e0.0208
127 Id.
128 Carlino, supra note 86 at 40.
129 Id. at 48.
enforceability (such as the above
referenced study by He), in which
factors unrelated to the legal changes at
issue are less likely to drive the results.
The Carlino study also does not discuss
whether patenting activity is an
appropriate measure of innovation,
though the other two studies suggest
that it may be an unreliable measure at
best. The study by Samila and Sorensen
examines the enforceability of non-
compete clauses across all states but
does not consider changes in
enforceability: they are therefore unable
to rule out that their results could be
due to underlying differences in the
states rather than non-compete clause
enforceability.
The Commission therefore places
greatest weight on the study by He,
which suggests innovation is largely
harmed by non-compete clause
enforceability. Though the results from
Carlino countervail this finding, those
results are subject to criticism (as is the
corroborating evidence found in Samila
and Sorensen).
Two additional studies address firm
strategies related to innovation. The
first, by Raffaele Conti, uses two
changes in non-compete clause
enforceability (in Texas and Florida),
and indicates that firms engage in
riskier strategies with respect to
research and development when non-
compete clause enforceability is
greater.130 Riskier research and
development strategies lead to more
breakthrough innovations, but also lead
to more failures, leaving the net impact
unclear. The paper does not quantify the
total impact on innovation.
The second, by Fenglong Xiao, found
increases in non-compete clause
enforceability led to increases in
exploitative innovation (i.e., innovation
which stays within the bounds of the
innovating firm’s existing competences),
and decreases in exploratory innovation
(i.e., innovation which moves outside
those bounds) in medical devices.131
Overall, this leads to an increase in the
quantity of innovation as measured by
the introduction of new medical
devices. This increase in quantity,
however, is the net result of an increase
in exploitative innovation and a
decrease in explorative innovation,
where the latter is the mode of
innovation which the empirical
130 Raffaele Conti, Do Non-Competition
Agreements Lead Firms to Pursue Riskier R&D
Strategies?, 35 Strategic Mgmt. J. 1230 (2014).
131 Fenglong Xiao, Non-Competes and
Innovation: Evidence from Medical Devices, 51
Rsch. Pol’y 1 (2022).

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3493
literature has found to be associated
with high growth firms.132
While these two additional studies
bring nuance to the changes in the types
of innovation pursued by firms when
non-compete clause enforceability
changes, neither undermines the weight
of the evidence described above: that
increased non-compete clause
enforceability broadly diminishes the
rate of innovation.
e. Training and Other Investment
There is evidence that non-compete
clauses increase employee training and
other forms of investment. Four studies
have examined investment outcomes:
two examine the effects of non-compete
clause enforceability on investment
(both of which find positive impacts on
investment), while two examine the
relationship between non-compete
clause use and investment (only one of
which finds positive impacts on
investment).
Of the two studies that examine the
effects of non-compete clause
enforceability on investment, one looks
at employee training, and one looks at
firm capital expenditures (e.g.,
investment in physical assets, such as
machines). The first study, a 2020 study
by Evan Starr, finds that moving from
mean non-compete clause enforceability
to no non-compete clause enforceability
would decrease the number of workers
receiving training by 14.7% in
occupations that use non-compete
clauses at a high rate (relative to a
control group of occupations that use
non-compete clauses at a low rate).133
The study further finds changes in
training are primarily due to changes in
firm-sponsored, rather than employee-
sponsored, training.134 Firm-sponsored
training is the type of training non-
compete clauses are often theorized to
protect, as the firm may be unwilling to
make an unprotected investment.
The second study, a 2021 study by
Jessica Jeffers, finds knowledge-
intensive firms invest 32% less in
capital equipment following decreases
in the enforceability of non-compete
clauses.135 While firms may invest in
capital equipment for many different
reasons, Jeffers examines this outcome
(as opposed to labor-focused outcomes)
to avoid looking at research and
development expenditure as a whole,
which is in large part composed of labor
132 Alessandra Colombelli, Jackie Krafft &
Francesco Quatraro, High-Growth Firms and
Technical Knowledge: Do Gazelles Follow
Exploration or Exploitation Strategies?, 23.1
Industrial and Corporate Change 262 (2014).
133 Starr, supra note 66 at 796–97.
134 Id. at 797.
135 Jeffers, supra note 92 at 28.
expenses. This allows the study to
isolate the effects of non-compete clause
enforceability on investment from other
effects of non-compete clauses, such as
reduced worker earnings. Jeffers finds
that there are likely two mechanisms
driving these effects: first, that firms
may be more likely to invest in capital
when they train their workers because
worker training and capital expenditure
are complementary (i.e., the return on
investment in capital equipment is
greater when workers are more highly
trained); and second, that non-compete
clauses reduce competition, and firms’
returns to capital expenditure are
greater when competition is lower,
incentivizing firms to invest more in
capital.136
The first study that examines the
impact of non-compete clause use on
investment is a 2021 study by Starr et.
al. using their 2014 survey of non-
compete clause use. They find no
statistically significant impact on either
training or the sharing of trade secrets
(after inclusion of control variables) but
cannot examine other investment
outcomes.137 The second study, a 2021
study by Johnson and Lipsitz, examines
investment in the hair salon industry. It
finds that firms that use non-compete
clauses train their employees at a higher
rate and invest in customer attraction
through the use of digital coupons (on
so-called ‘‘deal sites’’) to attract
customers at a higher rate, both by 11
percentage points.138 However, the
authors of both studies caution that
these results do not necessarily
represent a causal relationship.139 In
each study, the use of non-compete
clauses and the decision to invest may
be jointly determined by other
characteristics of the firms, labor
markets, or product markets. For this
reason, the Commission places
relatively minimal weight on these
studies in terms of how they inform the
relationship between the proposed rule
and future potential firm investment.
Overall, the additional incentive to
invest (in assets like physical capital,
human capital, or customer attraction,
or in the sharing of trade secrets and
confidential commercial information) is
the primary justification for use of non-
compete clauses. Any investment which
is lost due to the inability of firms to use
non-compete clauses would likely
represent the greatest cost of the
proposed rule. Indeed, one study, by
Kenneth Younge and Matt Marx, finds
136 Id. at 29.
137 Starr, Prescott, & Bishara, supra note 42 at 76.
138 Johnson & Lipsitz, supra note 54 at 711.
139 Starr, Prescott, & Bishara, supra note 42 at 73;
Johnson & Lipsitz, supra note 54 at 711.
that the value of publicly traded firms
increased by 9% due to an increase in
non-compete clause enforceability.140
However, they attribute this increase to
the value of retaining employees, which
comes with the negative effects to
parties other than the firm (employees,
competitors, and consumers) described
in this Part II.B. In particular, if benefits
to the firm arise primarily from
reductions in labor costs, then the
increase in the value of firms is in part
a transfer from workers to firms, and is
therefore not necessarily a
procompetitive benefit of non-compete
clauses. However, the authors do not
explore the extent to which increases in
firm value arise from decreases in labor
costs. The authors additionally note that
since the time frame used in the study
is short, ‘‘there may be deleterious
effects of non-competes in the long run’’
which are absent in their findings.141
The Commission requests comment
on all aspects of its description, in this
Part II.B, of the empirical evidence
relating to non-compete clauses and
their effects on competition. In
particular, the Commission seeks
submissions of additional data that
could inform the Commission’s
understanding of these effects.
C. Current Law Governing Non-Compete
Clauses
The states have always placed a
variety of restrictions on the ability of
employers to enforce non-compete
clauses. These restrictions are based on
public policy concerns American
courts—and English courts before
them—have recognized for centuries.
For example, in the English opinion
Mitchel v. Reynolds (1711), which
provided the foundation for the
American common law on non-compete
clauses,142 the court expressed concerns
that workers were vulnerable to
exploitation under non-compete clauses
and these clauses threatened workers’
ability to practice their trades and earn
a living.143
Today, while the enforceability of
non-compete clauses varies between
140 Kenneth A. Younge & Matt Marx, The value
of employee retention: evidence from a natural
experiment, 25 J. Econ. & Mgmt. Strategy 652
(2016).
141 Id. at 674.
142 Harlan Blake, Employment Agreements Not to
Compete, 73 Harv. L. Rev. 625, 630–31 (1960).
143 Mitchel v. Reynolds, 1 P. Wms. 181, 190 (Q.B.
1711) (expressing concern that non-compete clauses
threaten ‘‘the loss of [the worker’s] livelihood, and
the subsistence of his family,’’ and also ‘‘the great
abuses these voluntary restraints are liable to,’’ for
example, ‘‘from masters, who are apt to give their
apprentices much vexation’’ by using ‘‘many
indirect practices to procure such bonds from them,
lest they should prejudice them in their custom,
when they come to set up for themselves.’’).

3494 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
states, all fifty states restrict non-
compete clauses between employers and
workers to some degree.144 Non-
compete clauses between employers and
workers are generally subject to greater
scrutiny under state common law than
other employment terms, due to ‘‘the
employee’s disadvantageous bargaining
position at the time of contracting and
hardship at the time of
enforcement.’’ 145 For these reasons,
state courts often characterize non-
compete clauses as ‘‘disfavored.’’ 146
In addition to state common law, non-
compete clauses have always been
considered proper subjects for scrutiny
under the nation’s antitrust laws.147
1. State Law on Non-Compete Clauses
The question of whether or under
what conditions an employer can
enforce a particular non-compete clause
depends on the applicable state law.
Three states—California, North Dakota,
and Oklahoma—have adopted statutes
rendering non-compete clauses void for
nearly all workers.148 Among the 47
states where non-compete clauses may
be enforced under certain
circumstances, 11 states and the District
144 Cynthia Estlund, Between Rights and Contract:
Arbitration Agreements and Non-Compete
Covenants as a Hybrid Form of Employment Law,
155 U. Pa. L. Rev. 379, 391 (2006).
145 Id. See also Restatement (Second) of Contracts
sec. 188, cmt. g (1981) (‘‘Postemployment restraints
are scrutinized with particular care because they are
often the product of unequal bargaining power and
because the employee is likely to give scant
attention to the hardship he may later suffer
through loss of his livelihood.’’).
146 See, e.g., Navarre Chevrolet, Inc. v. Begnaud,
205 So. 3d 973, 975 (La. Ct. App. 3d 2016); Eastman
Kodak Co. v. Carmosino, 77 A.D.3d 1434, 1435
(N.Y. App. Div. 4th 2010); Access Organics, Inc. v.
Hernandez, 175 P.3d 899, 904 (Mont. 2008); Bybee
v. Isaac, 178 P.3d 616, 621 (Idaho 2008); Softchoice,
Inc. v. Schmidt, 763 NW2d 660, 666 (Minn. Ct.
App. 2009).
147 See, e.g., Am. Tobacco Co., 221 U.S. at 181–
83 (holding several tobacco companies violated
Sections 1 and 2 of the Sherman Act due to the
collective effect of six of the companies’ practices,
one of which was the ‘‘constantly recurring’’ use of
non-compete clauses); Newburger, Loeb & Co., Inc.,
563 F.2d at 1082 (‘‘Although such issues have not
often been raised in the federal courts, employee
agreements not to compete are proper subjects for
scrutiny under section 1 of the Sherman Act. When
a company interferes with free competition for one
of its former employee’s services, the market’s
ability to achieve the most economically efficient
allocation of labor is impaired. Moreover,
employee-noncompetition clauses can tie up
industry expertise and experience and thereby
forestall new entry.’’) (internal citation omitted).
148 See Cal. Bus. & Prof. Code sec. 16600; N.D.
Cent. Code sec. 9–08–06; Okla. Stat. Ann. tit. 15,
sec. 219A. While California law permits non-
compete clauses if they are necessary to protect an
employer’s trade secrets, see Muggill v. Reuben H.
Donnelley Corp., 62 Cal. 2d 239, 242 (Cal. 1965), the
scope of this exception is unclear. In a recent case,
the California Supreme Court declined to address
the issue. Edwards v. Arthur Andersen LLP, 189
P.3d 285, 289 n.4 (Cal. 2008).
of Columbia have enacted statutes
making non-compete clauses void or
unenforceable—or have banned
employers from entering into non-
compete clauses—based on the worker’s
earnings or a similar factor.149 In
addition, the majority of these 47 states
have statutory provisions that ban or
limit the enforceability of non-compete
clauses for workers in certain specified
occupations. In most states, those limits
apply to just one or two occupations
(most commonly, physicians).150
States have been particularly active in
restricting non-compete clauses in
recent years. Of the twelve state statutes
149 Colorado, Colo Rev. Stat. Ann. sec. 8–2–
113(2)(a)–(b), as amended by H.B. 22–1317
(effective Aug. 10, 2022) (non-compete clauses are
void except where they apply to a ‘‘highly
compensated worker,’’ currently defined as a
worker earning at least $101,250 annually, see Colo.
Code Regs. sec. 1103–14:1.2); District of Columbia,
DC Code sec. 32–581.02(a)(1) (effective Oct. 1, 2022)
(where the employee’s compensation is less than
$150,000, or less than $250,000 if the employee is
a medical specialist, employers may not require or
request that the employee sign an agreement or
comply with a workplace policy that includes a
non-compete clause); Illinois, 820 Ill. Comp. Stat.
90/10(a) (effective Jan. 1, 2017) (no employer shall
enter into a non-compete clause unless the worker’s
actual or expected earnings exceed $75,000/year);
Maine, Me. Rev. Stat. Ann. tit. 26, sec. 599–A(3)
(effective Sep. 19, 2019) (an employer may not
require or permit an employee earning wages at or
below 400% of the federal poverty level to enter
into a non-compete clause with the employer);
Maryland, Md. Code Ann., Lab. & Empl. sec. 3–
716(a)(1)(i) (effective Oct. 1, 2019) (non-compete
clauses are void where an employee earns equal to
or less than $15 per hour or $31,200 per year);
Massachusetts, Mass. Gen. Laws Ann. ch. 149, sec.
24L(c) (effective Jan. 14, 2021) (non-compete
clauses shall not be enforceable against workers
classified as nonexempt under the Fair Labor
Standards Act (‘‘FLSA’’)); Nevada, Nev. Rev. Stat.
sec. 613.195(3) (effective Oct. 1, 2021) (non-
compete clauses may not apply to hourly workers);
New Hampshire, N.H. Rev. Stat. Ann. sec. 275:70-
a(II) (effective Sept. 8, 2019) (employers shall not
require a worker who earns an hourly rate less than
or equal to 200% of the federal minimum wage to
enter into a non-compete clause, and non-compete
clauses with such workers are void and
unenforceable); Oregon, Or. Rev. Stat. sec.
653.295(1)(e) (effective Jan. 1, 2022) (non-compete
clauses are void and unenforceable except where
the worker’s annualized gross salary and
commissions at the time of the worker’s termination
exceed $100,533); Rhode Island, R.I. Gen Laws sec.
28–59–3(a)(1) (effective Jan. 15, 2020) (non-compete
clauses shall not be enforceable against workers
classified as nonexempt under the FLSA); Virginia,
Va. Code Ann. sec. 40.1–28.7:8(B) (effective July 1,
2020) (no employer shall enter into, enforce, or
threaten to enforce a non-compete clause with an
employee whose average weekly earnings are less
than the Commonwealth’s average weekly wage);
Washington, Wash. Rev. Code Ann. sec.
49.62.020(1)(b) and 49.62.030(1) (effective Jan. 1,
2020) (non-compete clause is void and
unenforceable unless worker’s annualized earnings
exceed $100,000 for employees and $250,000 for
independent contractors, to be adjusted for
inflation).
150 See Russell Beck, Beck Reed Riden LLP,
Employee Noncompetes: A State-by-State Survey
(August 17, 2022), (hereinafter ‘‘Beck Reed Riden
Chart’’).
restricting non-compete clauses based
on a worker’s earnings or a similar
factor (including the DC statute), eleven
were enacted in the past ten years.151
States have also recently passed
legislation limiting the use of non-
compete clauses for certain
occupations.152 Other recent state
legislation has imposed additional
requirements on employers that use
non-compete clauses. For example,
Oregon, Maine, Massachusetts, New
Hampshire, and Washington have
enacted laws requiring employers to
provide prior notice that a non-compete
clause will be required as a condition of
employment.153 Massachusetts and
Oregon have enacted ‘‘garden leave’’
provisions, which require employers to
compensate workers during the post-
employment period in which the
workers are bound by the non-compete
clause.154 Washington limited the
permissible duration of non-compete
clauses to 18 months,155 and
Massachusetts and Oregon limited it to
one year.156
For workers not covered by these
statutory restrictions, the question of
whether or under what conditions a
non-compete clause may be enforced
against them depends on state common
law.
In the 47 states where at least some
non-compete clauses may be enforced,
courts use a reasonableness inquiry to
determine whether to enforce a non-
compete clause, in addition to whatever
statutory limits they are bound to apply.
While the precise language of the test
differs from state to state, states
typically use a test similar to the test in
the Restatement (Second) of Contracts:
A promise to refrain from competition
that imposes a restraint that is ancillary
151 See supra note 149.
152 See, e.g., Connecticut, Conn. Gen. Stat. Ann.
sec. 20–681 (effective June 26, 2019) (home health
care workers); Florida, Fla. Stat. Ann. sec. 542.336
(effective June 25, 2019) (certain physicians in
certain counties); Hawaii, Haw. Rev. Stat. sec. 480–
4(d) (effective July 1, 2015) (technology workers);
Indiana, Ind. Code sec. 25–22.5–5.5–2 (effective
July 1, 2020) (physicians); Utah, Utah Code Ann.
sec. 34–51–201 (effective May 18, 2018)
(broadcasting employees).
153 Oregon, Or. Rev. Stat. sec. 653.295(1)(a)(A)
(effective Jan. 1, 2008); Maine, Me. Rev. Stat. Ann.
tit. 26, sec. 599–A(4) (effective Sep. 19, 2019);
Massachusetts, Mass. Gen. Laws Ann. ch. 149, sec.
24L(b)(i) (effective Jan. 14, 2021); New Hampshire,
N.H. Rev. Stat. Ann. sec. 275:70 (effective July 28,
2014); Washington, Wash. Rev. Code Ann. sec.
49.62.020(1)(a)(i) (effective Jan. 1, 2020).
154 Massachusetts, Mass. Gen. Laws Ann. ch. 149,
sec. 24L(b)(vii) (effective Jan. 14, 2021); Oregon, Or.
Rev. Stat. sec. 653.295(7) (effective Jan. 1, 2022).
155 Washington, Wash. Rev. Code Ann. sec.
49.62.020(2) (effective Jan. 1, 2020).
156 Massachusetts, Mass. Gen. Laws Ann. ch. 149,
sec. 24L(b)(iv) (effective Jan. 14, 2021); Oregon, Or.
Rev. Stat. sec. 653.295(3) (effective Jan. 1, 2022).

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3495
to an otherwise valid transaction or
relationship is unreasonably in restraint
of trade if (a) the restraint is greater than
is needed to protect the promisee’s
legitimate interest, or (b) the promisee’s
need is outweighed by the hardship to
the promisor and the likely injury to the
public.157
The first basis on which a non-
compete clause can be found
unreasonable is where the restraint is
greater than needed to protect the
employer’s legitimate interest. Nearly all
states recognize the protection of an
employer’s trade secrets as a legitimate
interest.158 Some states also recognize
an interest in protecting confidential
information that is not a trade secret.159
Some states also recognize an interest in
protecting the employer’s investment in
training, although many of these states
define the interest as protecting
specialized training.160 A few states
recognize an interest in preventing an
worker who provides ‘‘unique’’ services
from working for a competitor.161 Courts
do not recognize protection from
ordinary competition as a legitimate
business interest.162
If the employer can demonstrate a
legitimate interest, the employer must
then show the non-compete clause is
tailored to that interest. This analysis
typically considers whether the non-
compete clause prohibits a greater scope
of activity than necessary to protect the
employer’s legitimate interests; 163
covers a geographic area more extensive
than necessary to protect those
interests; 164 or lasts longer than needed
to protect those interests.165
The second basis under which a non-
compete clause can be found
unreasonable is where the employer’s
need for the non-compete clause is
outweighed by the hardship to the
157 Restatement (Second) of Contracts sec. 188
(1981).
158 See. e.g., Reed, Roberts Assocs. v. Strauman,
40 N.Y.2d 303, 308–09 (N.Y. 1976); see Beck Reed
Riden Chart, supra note 150 (listing each state’s
approach).
159 See. e.g., Proudfoot Consulting Co. v. Gordon,
576 F.3d 1223, 1233–34 (11th Cir. 2009); see Beck
Reed Riden Chart, supra note 150 (listing each
state’s approach).
160 See, e.g., IDMWORKS LLC v. Pophaly, 192 F.
Supp. 3d 1335, 1342 (S.D. Fla. 2016); see Beck Reed
Riden Chart, supra note 150 (listing each state’s
approach).
161 See, e.g., Ticor Title Ins. v. Cohen, 173 F.3d
63, 70 (2d Cir. 1999); see Beck Reed Riden Chart,
supra note 150 (listing each state’s approach).
162 See, e.g., Valley Med. Specialists v. Farber,
982 P.2d 1277, 1281 (Ariz. 1999).
163 See, e.g., Diversified Hum. Res. Grp., Inc. v.
Levinson-Polakoff, 752 SW2d 8, 11 (Tex. Ct. App.
1988).
164 See, e.g., Orkin Exterm. Co., Inc. v. Girardeau,
301 So. 2d 38, 39 (Fla. Ct. App. 1st 1974).
165 See, e.g., Jorgensen v. Coppedge, 181 P.3d 450,
454 (Idaho 2008).
worker and the likely injury to the
public. When assessing the ‘‘hardship to
the worker’’ prong, courts typically
consider whether the non-compete
clause would be unreasonable in light of
the worker’s personal circumstances.
For example, courts have invalidated
non-compete clauses where they would
destroy a worker’s sole means of
support.166
When assessing the ‘‘likely injury to
the public’’ prong, the factor most
frequently considered by courts is
whether enforcing the non-compete
clause against the worker would deprive
the community of essential goods and
services.167 Because these cases arise in
the context of individual litigation,
courts focus the ‘‘likely injury to the
public’’ inquiry on the loss of the
individual worker’s services and not on
the aggregate effects of non-compete
clauses on competition in the relevant
market.
State law also differs with respect to
the steps courts take when they
conclude that a non-compete clause is
unenforceable as drafted. The majority
of states have adopted the ‘‘reformation’’
or ‘‘equitable reform’’ doctrine, which
allows courts to revise the text of an
unenforceable non-compete clause to
make it enforceable.168 Some states have
adopted the ‘‘blue pencil’’ doctrine,
under which courts may remove any
defective provisions and may enforce
the non-compete clause if the remaining
provisions constitute a valid non-
compete clause.169 A few states have
adopted the ‘‘red pencil’’ doctrine,
under which courts declare an entire
non-compete clause void if one or more
of its provisions are found to be
defective.170
As noted above, the general language
of the test for whether a non-compete
clause is reasonable is fairly consistent
from state to state. However, the
specifics of non-compete clause law
differ from state to state. For example,
states vary in how narrowly or broadly
they define legitimate interests for using
a non-compete clause and the extent to
which courts are permitted to modify an
unenforceable non-compete clause to
166 See, e.g., Chavers v. Copy Prods. Co. of Mobile,
519 So. 2d 942, 945 (Ala. 1988).
167 See, e.g., Dick v. Geist, 693 P.2d 1133, 1136–
37 (Idaho Ct. App. 1985).
168 See, e.g., Butler v. Arrow Mirror & Glass, Inc.,
51 SW3d 787, 794 (Tex. Ct. App. 2001). See also
Beck Reed Riden Chart, supra note 150 (listing each
state’s approach).
169 See, e.g., Compass Bank v. Hartley, 430 F.
Supp. 2d 973, 980 (D. Ariz. 2006). See also Beck
Reed Riden Chart, supra note 150 (listing each
state’s approach).
170 See, e.g., Hassler v. Circle C Res., 505 P.3d
169, 178 (Wyo. 2022). See also Beck Reed Riden
Chart, supra note 150 (listing each state’s approach).
render it enforceable. As a result, among
the 47 states where non-compete clauses
may be enforced, variation exists with
respect to the enforceability of non-
compete clauses.171
Because the enforceability of non-
compete clauses varies from state to
state, the question of which state’s law
applies in a legal dispute between an
employer and a worker can determine
the outcome of the case. Non-compete
clauses often contain choice-of-law
provisions designating a particular
state’s law for resolution of any future
dispute.172 Some non-compete clauses
include forum-selection provisions
specifying the court and location where
any dispute will be heard.173 The
default rule under conflict-of-laws
principles is that the court honors the
parties’ choice of law, meaning the
burden is typically on the worker to
argue that the law of a different forum
should apply.174
In addition, there is significant
variation in how courts apply choice of
law rules in disputes over non-compete
clauses.175 As a result, it can be difficult
for employers and workers to predict
how disputes over choice of law will be
resolved.176 Additionally—aside from
the question of which state’s law should
apply—employers and workers may be
uncertain about whether the non-
compete clause is enforceable under the
state’s law. Furthermore, state non-
compete law may change; as described
above in Part II.C.1, there have been
many changes in state non-compete law
in recent years. The result is that
employers and workers may face
considerable uncertainty as to whether
171 Norman D. Bishara, Fifty Ways to Leave Your
Employer: Relative Enforcement of Non-Compete
Clauses, Trends, and Implications for Employee
Mobility Policy, 13 U. Pa. J. Bus. L. 751, 778–79
(2011).
172 Gillian Lester & Elizabeth Ryan, Choice of Law
and Employee Restrictive Covenants: An American
Perspective, 31 Comp. Lab. & Pol’y J. 389, 396–402
(2010).
173 Id. at 402–04.
174 Lester & Ryan, supra note 172 at 394. Cf. Cal.
Lab. Code § 925(a) (stating that employers shall not
require an employee who primarily resides and
works in California, as a condition of employment,
to agree to a provision that would either (1) require
the employee to adjudicate outside of California a
claim arising in California or (2) deprive the
employee of the substantive protection of California
law with respect to a controversy arising in
California.
175 Id.
176 Id. at 394–95 (‘‘The state of the law is perhaps
characterized more by inconsistency than anything
else, so much so that commentators lament the
‘disarray’ and ‘mish-mash’ of the law, and criticize
courts for their ‘post-hoc rationalizing of intuitions’
or their use of a ‘hodgepodge of factors, often with
insignificant explanation of how they decide what
weight to give each.’’’) (internal citations omitted).

3496 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
a particular non-compete clause may be
enforced.
Workers may also be subject to
arbitration clauses, which require that
legal disputes with the employer—
including disputes related to non-
compete clauses—be resolved through
binding arbitration rather than in court.
Where such clauses are valid, the
Federal Arbitration Act requires that
courts enforce them.177
Most state courts apply different rules
to non-compete clauses when they are
entered into between the seller and
buyer of a business, compared with non-
compete clauses that arise solely out of
the employment relationship.178 The
three states in which non-compete
clauses are void in nearly all
instances—California, North Dakota,
and Oklahoma—permit enforcement
when non-compete clauses are entered
into between the seller and buyer of a
business.179 In most of the other states,
non-compete clauses between the seller
and buyer of a business are either
exempted from the state’s non-compete
clause statute, subject to a more lenient
test under the statute, or subject to more
lenient standard under the state’s case
law.180 Courts cite several different
reasons for why they accord different
treatment to non-compete clauses
between the seller and buyer of a
business. These reasons include the
relatively equal bargaining power of
both parties in the context of a business
sale, relative to the employer-worker
context, where there is more likely to be
unequal bargaining power; the need to
protect the buyer’s right to the goodwill
for which it has paid; and the fact that
the proceeds from the sale will ensure
that the seller of the business will not
experience undue hardship.181
2. Non-Compete Clauses and Antitrust
Law
Non-compete clauses are ‘‘contract[s]
. . . in restraint of trade.’’ Therefore,
177 See, e.g., Nitro-Lift Techs. v. Howard, 568 U.S.
17, 21–22 (2012).
178 Based on a review of the state cases in
Malsberger (2017), supra note 62 and Fenwick &
West LLC, Summary of Non-Compete Clauses: A
Global Perspective, https://assets.fenwick.com/
legacy/FenwickDocuments/RS_Summary-of-
Covenants.pdf.
179 Cal. Bus. & Prof. Code sec. 16601; N.D. Cent.
Code sec. 9–08–06; Okla. Stat. Ann. tit. 15, sec. 218.
180 See, e.g., Colo. Rev. Stat. Ann. sec. 8–2–
113(3)(c) (statutory exemption); Ga. Code Ann. sec.
13–8–57(d) (more lenient statutory test); Jiffy Lube
Int’l, Inc. v. Weiss Bros., Inc., 834 F. Supp. 683, 691
(D.N.J. 1993) (more lenient standard under case
law).
181 See, e.g., Woodward v. Cadillac Overall
Supply Co., 240 NW 2d 710, 715 (Mich. 1976)
(bargaining power); Bybee, 178 P.3d at 622 (Idaho
2008) (goodwill); Centorr-Vacuum Indus., Inc. v.
Lavoie, 609 A.2d 1213, 1215 (N.H. 1992) (undue
hardship).
they are subject to Section 1 of the
Sherman Act.182 The Commission has
identified 17 cases in cases in which
private plaintiffs or the federal
government have challenged a non-
compete clause between an employer
and a worker under either Section 1 or
an analogous provision in a state
antitrust statute.183 (Three of these 17
cases concerned non-compete clauses
between the seller and buyer of a
business,184 and two of these 17 cases
were brought under state antitrust
statutes.185)
In two of these 17 cases, the parties
challenging the non-compete clause
were successful to some degree. In the
early antitrust case of United States v.
American Tobacco Co., the Supreme
Court held that several tobacco
companies violated both Section 1 and
Section 2 of the Sherman Act because of
the collective effect of six of the
companies’ practices, one of which was
the ‘‘constantly recurring’’ use of non-
compete clauses.186 This is the only
case the Commission has identified in
which a court analyzed the collective,
rather than isolated, use of non-compete
clauses.
More recently, a federal district court
denied a motion to dismiss a plaintiff’s
182 See, e.g., Newburger, Loeb & Co., Inc., 563
F.2d at 1082.
183 U.S. v. Am. Tobacco Co., 221 U.S. 106 (1911);
Alders v. AFA Corp. of Fla., 353 F. Supp. 654 (S.D.
Fla. 1973) (non-compete clause between seller and
buyer of a business); Bradford v. N.Y. Times Co.,
501 F.2d 51 (2d Cir. 1974); Golden v. Kentile Floors,
Inc., 512 F.2d 838 (5th Cir. 1975); U.S. v. Empire
Gas Corp., 537 F.2d 296 (8th Cir. 1976); Newburger,
Loeb & Co., Inc. v. Gross, 563 F.2d 1057 (2d Cir.
1977); Lektro-Vend Corp. v. Vendo Co., 660 F.2d
255 (7th Cir. 1981) (non-compete clause between
seller and buyer of a business); Aydin Corp. v. Loral
Corp., 718 F.2d 897 (9th Cir. 1983); Consultants &
Designers, Inc. v. Butler Serv. Grp., Inc., 720 F.2d
1553 (11th Cir. 1983); Caremark Homecare, Inc. v.
New England Critical Care, Inc., 700 F. Supp. 1033
(D. Minn. 1988); GTE Data Servs., Inc. v. Elec. Data
Sys. Corp., 717 F. Supp. 1487 (M.D. Fla. 1989);
DeSantis v. Wackenhut Corp., 793 SW2d 670 (Tex.
1990) (state antitrust law case); Borg-Warner
Protective Servs. Corp. v. Guardsmark, Inc., 946 F.
Supp. 495 (E.D. Ky. 1996); Caudill v. Lancaster
Bingo Co., Inc., 2005 WL 2738930 (S.D. Ohio Oct.
24, 2005); Dallas South Mill, Inc. v. Kaolin
Mushroom Farms, Inc., 2007 WL 9712116 (N.D.
Tex. Feb. 23, 2007); Cole v. Champion Enters., Inc.,
496 F. Supp. 2d 613 (M.D.N.C. 2007) (non-compete
clause between seller and buyer of a business) (state
antitrust law case); Signature MD, Inc. v. MDVIP,
Inc., 2015 WL 3988959 (C.D. Cal. Apr. 21, 2015).
There are also several opinions addressing whether
non-compete clauses between businesses violate
Section 1. Courts generally apply a less restrictive
legal standard to non-compete clauses between
businesses. See, e.g., Lumber Liquidators, Inc., 415
F. Supp. 3d at 715–16.
184 Alders, 353 F. Supp. 654; Lektro-Vend, 660
F.2d 255; Cole, 496 F. Supp. 2d 613.
185 DeSantis, 793 SW2d 670; Cole, 496 F. Supp.
2d 613.
186 Am. Tobacco Co., 221 U.S. at 181–83. Section
2 of the Sherman Act, 15 U.S.C. 2, prohibits
monopolization or attempted monopolization.
claim that a non-compete clause
between a concierge medicine firm and
physicians violated Section 1. The court
held that while the reasonableness of
the non-compete clause ultimately
would be a factual determination, the
plaintiff stated a valid claim under
Section 1 where it alleged the firm
‘‘includes post-contract non-compete
clauses with an unreasonably large
liquidated damage provision in its
employment contracts,’’ in addition to
other practices.187
In the other 15 Sherman Act cases, the
challenge to the individual non-compete
clause was unsuccessful. These claims
failed for three main reasons. First, in
several of these cases, the parties
challenging the non-compete clause
argued solely that the non-compete
clause they were challenging should be
per se unlawful under Section 1. Courts
rejected these arguments, reasoning that
non-compete clauses may serve
legitimate business interests in some
instances 188 and that courts have had
insufficient experience with non-
compete clauses to warrant a per se
categorization under Section 1.189
The second main reason these
challenges have been unsuccessful is
that, in the vast majority of these 15
cases, the party challenging the non-
compete clause did not allege the non-
compete clause adversely affected
competition, which is an essential
element of a Section 1 claim in rule of
reason cases.190 In only one case did the
plaintiff appear to allege facts related to
anticompetitive effect beyond the effect
on the person bound by the non-
compete clause. In that case, the court
dismissed the plaintiff’s claim because
the plaintiff did not sufficiently allege
‘‘the amount of competition foreclosed
by defendant.’’ 191
Third, courts have also rejected
challenges to non-compete clauses
based on reasoning that a corporation is
not capable of conspiring with its
employees as a matter of law.192
Plaintiffs have also challenged non-
compete clauses between employers and
workers under Section 2 of the Sherman
Act, which prohibits monopolization or
attempted monopolization.193 The
Commission is not aware of a case in
which a Section 2 claim relating to an
187 Signature MD, Inc., 2015 WL 3988959 at *7.
188 See, e.g., Lektro-Vend, 660 F.2d at 265.
189 See, e.g., Aydin, 718 F.2d at 900.
190 See, e.g., Ohio v. Am. Express Co., — U.S.—
, 138 S. Ct. 2274, 2284 (2018).
191 GTE Data Servs., 717 F. Supp. at 1492.
192 See, e.g., Borg-Warner, 946 F. Supp. 499;
Dallas South Mill, 2007 WL 9712116 at *3.
193 15 U.S.C. 2. See, e.g., BRFHH Shreveport, LLC.
v. Willis Knighton Med. Ctr., 176 F. Supp. 3d 606,
616–26 (W.D. La. 2016).

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3497
employer’s use of a non-compete clause
has been successful.
3. Federal and State Enforcement
Activity Related to Non-Compete
Clauses
In recent years, state attorneys general
in Illinois, New York, and Washington
have sued companies for unlawfully
using non-compete clauses. As of
January 2020, state attorneys general
have publicly announced settlements
with seven companies regarding the use
of non-compete clauses.194 In February
2022, the Antitrust Division filed a
statement of interest in a state non-
compete clause case brought by private
plaintiffs.195
The Antitrust Division and the
Commission have also taken steps in
recent years to address other types of
contractual provisions that restrict
competition in labor markets. The
Antitrust Division has brought civil
enforcement actions under Section 1
against several technology companies
for entering into no-poach agreements
with competitors. These enforcement
actions ended with consent judgments
against the companies.196 In addition,
the Antitrust Division has brought
criminal charges for wage-fixing and no-
poach agreements against companies
and individuals.197 The Commission too
has brought civil enforcement actions
against companies related to
competition for employment, which
ended in consent judgments against the
194 See Public Comments of 19 State Attorneys
General in Response to the Federal Trade
Commission’s January 9, 2020 Workshop on Non-
Compete Clauses in the Workplace at 6 n.23 (listing
the settlements).
195 Statement of Interest of the United States,
Beck v. Pickert Med. Grp., No. CV21–02092 (Nev.
Dist. Ct. Feb. 25, 2022).
196 See Antitrust Guidance for Human Resource
Professionals, supra note 37 at 3–4 (citing cases).
197 U.S. v. Neeraj Jindal and John Rodgers, No.
4:20–cr–358–ALM–KPJ (E.D. Tex. Dec. 9, 2020);
U.S. v. Surgical Care Affiliates, LLC and SCAI
Holdings, LLC, No. 3:21–cr–011–L (N.D. Tex. Jan. 5,
2021); U.S. v. Ryan Hee and VDA OC, LLC,
formerly ADVANTAGE ON CALL, LLC, No. 2:21–
cr–00098–RFB–BNW (D. Nev. Mar. 26, 2021); U.S.
v. DaVita, Inc. and Kent Thiry, No. 21–cr–00229–
RBJ (D. Colo. Nov. 3, 2021); U.S. v. Patel, et al.,
3:21–cr–220–VHB–RAR (D. Conn. Dec. 15, 2021);
U.S. v. Manahe, et al., 2:22–cr–00013–JAW (D. Me.
Jan. 27, 2022). The defendants in the Jindal case
were found not guilty of the wage-fixing charge, and
the defendants in the DaVita cases were found not
guilty of all charges. Jindal, Jury Verdict (E.D. Tex.
Apr. 14, 2022); DaVita, Verdict (D. Colo. Apr. 15,
2022). However, both courts found that the conduct
alleged in the indictment properly fell within the
confines of the per se rule. Jindal, Memorandum
Opinion and Order, 2021 WL 5578687 (E.D. Tex.
Nov. 29, 2021) at *4–*8; DaVita, Order Denying
Defendants’ Motion to Dismiss, 2022 WL 266759 (D.
Colo. Jan. 28, 2022) at *4–*8. The court in Manahe
likewise recently denied a motion to dismiss,
holding the indictment charged a recognized form
of per se illegal conduct. 2022 WL 3161781, at **7,
9 (D. Me. Aug. 8, 2022).
companies.198 In addition, the attorney
general of the State of Washington has
entered into settlement agreements with
over 200 companies in which the
companies have agreed to stop using no-
poach clauses.199
The Commission seeks comment on
all aspects of its description, in this Part
II.C, of the law currently governing non-
compete clauses. The Commission
specifically seeks comment on the
extent to which employers use choice-
of-law provisions to evade the laws of
states where non-compete clauses are
relatively less enforceable. The
Commission also seeks comment on the
extent to which a uniform federal
standard for non-compete clauses would
promote certainty for employers and
workers.
D. The Commission’s Work on Non-
Compete Clauses
This rulemaking represents the
culmination of several years of activity
by the Commission related to non-
compete clauses and their effects on
competition. This activity has included
extensive public outreach and fact-
gathering related to non-compete
clauses, other restrictive employment
covenants that may harm competition,
and competition in labor markets
generally. The Commission has also
analyzed non-compete clauses in
connection with its enforcement,
research, and merger review work.
The Commission first began focusing
on non-compete clauses in the mid-
2010s, as a growing body of empirical
research raised concerns about the
anticompetitive effects of non-compete
clauses. In 2018 and 2019, the
Commission held several ‘‘Hearings on
Competition and Consumer Protection
in the 21st Century.’’ 200 The
Commission invited public comment on
a wide range of topics, including ‘‘the
use of non-competition agreements and
the conditions under which their use
may be inconsistent with the antitrust
laws.’’ 201 Participants addressed non-
compete clauses at two of the
hearings.202
198 See Antitrust Guidance for Human Resource
Professionals, supra note 37 at 4 (citing cases).
199 Office of the Att’y Gen. of the State of Wash.,
Press Release, AG Report: Ferguson’s Initiative Ends
No-Poach Practices Nationally at 237 Corporate
Franchise Chains (June 16, 2020).
200 Fed. Trade Comm’n, Hearings on Competition
and Consumer Protection in the 21st Century,
https://www.ftc.gov/enforcement-policy/hearings-
competition-consumer-protection.
201 Fed. Trade Comm’n, Notice, Hearings on
Competition and Consumer Protection in the 21st
Century, 83 FR 38307, 38309 (Aug. 6, 2018).
202 Fed. Trade Comm’n, Transcript, Competition
and Consumer Protection in the 21st Century (Oct.
16, 2018), https://www.ftc.gov/system/files/
Also in 2019, the Open Markets
Institute, 19 labor and public interest
organizations, and 46 individual
advocates and scholars petitioned the
Commission to initiate a rulemaking to
prohibit non-compete clauses.203
As evidence mounted regarding the
anticompetitive effects of non-compete
clauses, the Commission’s focus on this
issue increased. On January 9, 2020, the
Commission held a public workshop on
non-compete clauses. At the workshop,
speakers and panelists addressed topics
including statutory and judicial
treatment of non-compete clauses; the
Commission’s authority to address non-
compete clauses; the economic
literature regarding the effects of non-
compete clauses; and whether the
Commission should initiate a
rulemaking on non-compete clauses.204
In connection with the workshop, the
Commission sought public comment on
a wide range of topics related to a
potential rulemaking on non-compete
clauses. The Commission received 328
comments addressing these topics from
researchers, advocates for workers,
employers, trade associations, attorneys,
members of Congress, state and local
officials, unions, other organizations,
and individual members of the
public.205
In addition, on August 5, 2021, the
Commission issued a solicitation for
public comment on contract terms that
may harm competition, including ‘‘non-
compete clauses that prevent workers
from seeking employment with other
firms.’’ The Commission received 280
comments on this solicitation from a
wide range of stakeholders.206 On
December 6–7, 2021, the Commission
and the Antitrust Division held a
workshop entitled ‘‘Making Competition
Work: Promoting Competition in Labor
Markets.’’ The Commission sought
documents/public_events/1413712/ftc_hearings_
session_3_transcript_day_2_10-16-18_1.pdf; Fed.
Trade Comm’n, Transcript, Competition and
Consumer Protection in the 21st Century (June 12,
2019), https://www.ftc.gov/system/files/documents/
public_events/1519667/ftc_hearings_session_14_
transcript_6-12-19_0.pdf.
203 Open Markets Inst. et al., Petition for
Rulemaking to Prohibit Worker Non-Compete
Clauses (March 20, 2019).
204 Fed. Trade Comm’n, Non-Competes in the
Workplace: Examining Antitrust and Consumer
Protection Issues, https://www.ftc.gov/news-events/
events/2020/01/non-compete clauses-workplace-
examining-antitrust-consumer-protection-issues.
205 Fed. Trade Comm’n, Docket FTC–2019–0093,
Workshop on Non-Compete Clauses Used in
Employment Contracts, https://
www.regulations.gov/document/FTC-2019-0093-
0001/comment.
206 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.

3498 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
comment from the public in connection
with this event and received 27
comments.207
As it has developed this proposed
rule, the Commission has closely
considered the views expressed at these
forums and the public comments it has
received through these engagement
efforts. The comments have informed
the Commission’s understanding of the
evidence regarding the effects of non-
compete clauses; the law currently
governing non-compete clauses; and the
options for how the Commission may
seek to restrict the unfair use of non-
compete clauses through rulemaking,
among other topics.
The Commission has also focused on
non-compete clauses in connection with
its enforcement, merger review, and
research work. With respect to
enforcement, in 2021, the Commission
initiated investigations into the use of
non-compete clauses by manufacturers
of glass containers used for food and
beverage packaging. On December 28,
2022, the Commission accepted, subject
to final approval, consent agreements
with two manufacturers in the
industry.208 The glass container
industry is highly concentrated and is
characterized by substantial barriers to
entry and expansion. Among these
barriers, it is difficult to identify and
employ personnel with skills and
experience in glass container
manufacturing.209
The complaints allege the
manufacturers required employees
across a variety of positions—including
employees who work with the glass
plants’ furnaces and forming equipment
and in other glass production,
engineering, and quality assurance
roles—to enter into non-compete
clauses. The complaints allege this
conduct has a tendency or likelihood to
impede rivals’ access to the restricted
employees’ labor, to limit workers’
mobility, and thus to harm workers,
consumers, competition, and the
competitive process. As such, the
complaints allege each company has
engaged in an unfair method of
competition in violation of Section 5 of
207 Fed. Trade Comm’n, Docket FTC–2021–0057,
Making Competition Work: Promoting Competition
in Labor Markets, https://www.regulations.gov/
docket/FTC-2021-0057/comments.
208 Fed. Trade Comm’n, Decision and Order, In re
O–I Glass, Inc. et al, Matter No. 211 0182 (December
28, 2022); Fed. Trade Comm’n, Decision and Order,
In re Ardaugh Group S.A. et al, Matter No. 211 0182
(December 28, 2022).
209 Fed. Trade Comm’n, Analysis of Agreements
Containing Consent Order to Aid Public Comment,
In re O–I Glass Inc. et al., In re Ardaugh Group S.A.
et al, Matter No. 211 0182 (December 28, 2022) at
2.
the FTC Act.210 The proposed consent
orders would prohibit each
manufacturer from ‘‘entering or
attempting to enter, maintaining or
attempting to maintain, or enforcing or
attempting to enforce a Non-Compete
Restriction with an Employee, or
communicating to an Employee or a
prospective or current employer of that
Employee that the Employee is subject
to a Non-Compete Restriction.’’ 211
In 2021, the Commission also
initiated investigations into the use of
non-compete clauses in the security
guard services industry. On December
28, 2022, the Commission accepted,
subject to final approval, a consent
agreement with Prudential Security,
Inc., Prudential Command Inc., and the
firms’ co-owners (collectively
‘‘Prudential Respondents’’). Prudential
Security, Inc. and Prudential Command
Inc. provided security guard services to
clients in several states.
The Commission’s complaint alleges
the Prudential Respondents’ use of non-
compete clauses is an unfair method of
competition under Section 5 because it
is restrictive, coercive, and exploitative
and negatively affects competitive
conditions.212 The complaint further
alleges the Prudential Respondents’
imposition of non-compete clauses took
advantage of the unequal bargaining
power between Prudential Respondents
and their employees, particularly low-
wage security guard employees, and
thus reduced workers’ job mobility,
limited competition for workers’
services, and ultimately deprived
workers of higher wages and more
favorable working conditions.213 Under
the terms of the proposed order,
Prudential Respondents—including any
companies the co-owners may control in
the future—must cease and desist from
entering, maintaining, enforcing, or
attempting to enforce any non-compete
clause.214
These consent orders have been
placed on the public record for 30 days
in order to receive comments from
interested persons. After 30 days, the
Commission will again review the
consent agreements and the comments
received and will decide whether it
should make the proposed orders final
or take other appropriate action.215
210 Id. at 1–2.
211 Id. at 7.
212 Fed. Trade Comm’n, Analysis of Agreement
Containing Consent Order to Aid Public Comment,
In re Prudential Sec., Inc. et al., Matter No. 211
0026 at 1, 5–7 (December 28, 2022).
213 Id. at 1.
214 Id.
215 Id. at 1–2; Glass Container Analysis to Aid
Public Comment, supra note 209 at 1.
In addition, as part of a 2020
settlement with the Commission, three
national rent-to-own companies agreed
to refrain from enforcing non-compete
clauses that were entered into in
connection with reciprocal purchase
agreements.216
With respect to merger review, on
August 11, 2015, the Commission
approved a final order settling charges
that Zimmer Holdings, Inc.’s acquisition
of Biomet, Inc. would have eliminated
competition between the companies in
the markets for certain orthopedic
medical products. Among other things,
the order requires Zimmer to ‘‘remove
any impediments or incentives’’ that
may deter workers from accepting
employment with the divested
businesses, including non-compete
clauses.217
On November 10, 2021, the
Commission approved a final order
settling charges that 7-Eleven’s
acquisition of Marathon Petroleum
Corporation’s Speedway subsidiary
violated federal antitrust laws. Among
other things, the order prohibits 7-
Eleven from enforcing any non-compete
clauses against any franchisees or
employees working at or doing business
with the divested assets.218
On January 10, 2022, the Commission
approved a final order settling charges
that dialysis service provider DaVita,
Inc.’s acquisition of University of Utah
Health’s dialysis clinics would reduce
competition in vital outpatient dialysis
services in the Provo, Utah market. As
part of the order, DaVita was required to
remove certain non-compete clauses
and prohibited from enforcing or
entering into non-compete clauses with
certain parties.219 And on August 9,
2022, the Commission issued a final
consent order in which ARKO Corp. and
its subsidiary GPM agreed to roll back
a sweeping non-compete clause they
216 Fed. Trade Comm’n, Press Release, Rent-to-
Own Operators Settle Charges that They Restrained
Competition through Reciprocal Purchase
Agreements (Feb. 21, 2020), https://www.ftc.gov/
news-events/news/press-releases/2020/02/rent-own-
operators-settle-charges-they-restrained-
competition-through-reciprocal-purchase-
agreements.
217 Fed. Trade Comm’n, In the Matter of Zimmer
Holdings, Inc. et al., No. C–4534, Decision and
Order (Aug. 11, 2015), https://www.ftc.gov/system/
files/documents/cases/150820zimmerdo.pdf.
218 Fed. Trade Comm’n, Press Release, 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-requiring-divestitures-
hundreds-retail-gas-diesel-fuel-stations-owned-7.
219 Fed. Trade Comm’n, In the Matter of Davita
Inc. and Total Renal Care, Inc., No. C–4752,
Decision and Order (Jan. 10, 2022) at 12–14, https://
www.ftc.gov/system/files/documents/cases/211_
0056_c4752_davita_utah_health_order.pdf.

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3499
imposed on a company to which they
sold 60 gas stations.220
With respect to research, in
September 2021, the Commission issued
a study analyzing acquisitions by five
large technology companies that were
not reported to the Commission and the
U.S. Department of Justice under the
Hart-Scott-Rodino Act.221 The study
found 76.7% of transactions included
non-compete clauses for founders and
key employees of the acquired entities.
The study also found that higher-value
transactions were more likely to use
non-compete clauses.222 The study does
not explain why the companies used
non-compete clauses or analyze the
effects of these particular non-compete
clauses on competition.
The Commission seeks comment on
its description, in this Part II.D, of the
Commission’s work on non-compete
clauses prior to this NPRM.
III. Legal Authority
Section 5 of the FTC Act declares
‘‘unfair methods of competition’’ to be
unlawful.223 Section 5 further directs
the Commission ‘‘to prevent persons,
partnerships, or corporations . . . from
using unfair methods of competition in
or affecting commerce.’’ 224 Section 6(g)
of the FTC Act authorizes the
Commission to ‘‘make rules and
regulations for the purpose of carrying
out the provisions of’’ the FTC Act,
including the Act’s prohibition of unfair
methods of competition.225 Taken
together, Sections 5 and 6(g) provide the
Commission with the authority to issue
regulations declaring practices to be
unfair methods of competition.226
Courts have made clear Section 5’s
prohibition of unfair methods of
competition encompasses all practices
that violate either the Sherman or
Clayton Acts.227 However, courts have
long held the scope of Section 5 is not
220 Fed. Trade Comm’n, Press Release, 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-competitive-markets-gasoline-
diesel-michigan-ohio.
221 Fed. Trade Comm’n, Non-HSR Reported
Acquisitions by Select Technology Platforms, 2010–
2019: An FTC Study (September 2021) at 1.
222 Id. at 21–22. The table states that the figure is
77.3%. The reason for this discrepancy is not clear.
223 15 U.S.C. 45(a)(1).
224 15 U.S.C. 45(a)(2).
225 15 U.S.C. 46(g).
226 Nat’l Petroleum Refiners Ass’n v. Fed. Trade
Comm’n, 482 F.2d 672, 697–98 (D.C. Cir. 1973).
227 See, e.g., Fed. Trade Comm’n v. Cement Inst.,
333 U.S. 683, 693 (1948) (holding practices that
violate the Sherman Act are unfair methods of
competition); Fashion Originators’ Guild of Am. v.
Fed. Trade Comm’n, 312 U.S. 457, 464 (1941)
(holding practices that violate the Clayton Act are
unfair methods of competition).
confined to the conduct that is
prohibited under the Sherman Act,
Clayton Act, or common law.228 Section
5 reaches incipient violations of the
antitrust laws—conduct that, if left
unrestrained, would grow into an
antitrust violation in the foreseeable
future.229 Additionally, Section 5
reaches conduct that, while not
prohibited by the Sherman or Clayton
Acts, violates the spirit or policies
underlying those statutes.230
IV. The Commission’s Preliminary
Determination That Non-Compete
Clauses Are an Unfair Method of
Competition
The Commission preliminarily
determines 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; maintain
with a worker a non-compete clause; or
represent to a worker that the worker is
subject to a non-compete clause where
the employer has no good faith basis to
believe the worker is subject to an
enforceable non-compete clause.231 This
preliminary determination is the basis
for this proposed rule, which would
provide that each of these practices is an
unfair method of competition under
Section 5.232 This Part IV sets forth a
228 See, e.g., Fed. Trade Comm’n v. Motion
Picture Advert. Serv. Co., 344 U.S. 392, 394–95
(1953) (‘‘The ‘Unfair methods of competition’,
which are condemned by [Section] 5(a) of the [FTC]
Act, are not confined to those that were illegal at
common law or that were condemned by the
Sherman Act. Congress advisedly left the concept
flexible to be defined with particularity by the
myriad of cases from the field of business.’’)
(internal citations omitted).
229 See, e.g., Cement Inst., 333 U.S. at 708 (‘‘A
major purpose of [the FTC] Act was to enable the
Commission to restrain practices as ‘unfair’ which,
although not yet having grown into Sherman Act
dimensions would most likely do so if left
unrestrained.’’); Fashion Originators’ Guild, 312
U.S. at 466; Triangle Conduit & Cable Co. v. Fed.
Trade Comm’n, 168 F.2d 175, 176 (7th Cir. 1948).
230 See, e.g., Fashion Originators’ Guild, 312 U.S.
at 463 (stating that ‘‘[i]f the purpose and practice
of the combination of garment manufacturers and
their affiliates runs counter to the public policy
declared in the Sherman and Clayton Acts, the
Federal Trade Commission has the power to
suppress it as an unfair method of competition’’);
E.I. du Pont de Nemours & Co. v. Fed. Trade
Comm’n (Ethyl), 729 F.2d 128, 136–37 (2d Cir.
1984) (finding that the Commission may bar
‘‘conduct which, although not a violation of the
letter of the antitrust laws, is close to a violation
or is contrary to their spirit’’). On November 10,
2022, the Commission issued a policy statement
describing the key principles of general
applicability concerning whether conduct is an
unfair method of competition under Section 5. Fed.
Trade Comm’n, Policy Statement Regarding the
Scope of Unfair Methods of Competition Under
Section 5 of the Federal Trade Commission Act
(Nov. 10, 2022).
231 For ease of reference, this Part IV employs the
term ‘‘use of non-compete clauses’’ as a shorthand
to refer to this conduct.
232 See proposed § 910.2(a).
series of preliminary findings that
provide the basis for this preliminary
determination. The Commission’s
preliminary determination and each of
these preliminary findings are subject to
further consideration in light of the
comments received and the
Commission’s additional analysis. The
Commission seeks comment on all
aspects of this Part IV.233
A. Non-Compete Clauses Are an Unfair
Method of Competition Under Section 5
1. Non-Compete Clauses Are Unfair
Courts have held conduct is an
‘‘unfair method of competition’’ under
Section 5 where the conduct is facially
unfair. In Atlantic Refining Co. v. FTC
and FTC v. Texaco, Inc., the Court held
the Commission established an unfair
method of competition where an oil
company used its economic power over
its gas stations to coerce them into
buying certain tires, batteries, or
accessories only from firms that paid the
oil company a commission.234 In
Texaco, the Court held the conduct was
an unfair method of competition even
though Texaco’s conduct was not
overtly coercive, reasoning that Texaco’s
conduct was ‘‘inherently coercive’’
because its ‘‘dominant economic power
was used in a manner which tended to
foreclose competition.’’ 235 In FTC v.
R.F. Keppel & Bro., the Court held the
Commission established an unfair
method of competition where a
manufacturer exploited the inability of
children to protect themselves in the
marketplace by marketing inferior goods
to them through use of a gambling
scheme.236 In E.I. du Pont de Nemours
& Co. v. FTC (Ethyl), the U.S. Court of
Appeals for the Second Circuit
reaffirmed that coercive conduct is
quintessentially covered by Section 5’s
prohibition of unfair methods of
competition.237
The Court has also held that, for
coercive conduct to constitute unfair
233 The Commission intends for this Part IV to
satisfy the requirements in Section 22 of the FTC
Act that, in an NPRM, the Commission issue a
preliminary regulatory analysis that contains ‘‘a
concise statement of the need for, and the objectives
of, the proposed rule.’’ 15 U.S.C. 57b–3.
234 Atl. Refin. Co., 381 U.S. at 369–70; Texaco,
Inc., 393 U.S. at 228–29.
235 393 U.S. 223 at 228–29 (1968). See also Shell
Oil Co. v. Fed. Trade Comm’n, 360 F.2d 470, 487
(5th Cir. 1966) (‘‘A man operating a gas station is
bound to be overawed by the great corporation that
is his supplier, his banker, and his landlord.’’).
236 291 U.S. 304, 313 (1934).
237 729 F.2d 128, 140 (2d Cir. 1984) (‘‘In short, in
the absence of proof of a violation of the antitrust
laws or evidence of collusive, coercive, predatory,
or exclusionary conduct, business practices are not
‘‘unfair’’ in violation of § 5 unless those practices
either have an anticompetitive purpose or cannot be
supported by an independent legitimate reason.’’).

3500 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
method of competition, it must burden
commerce. In Atlantic Refining, the
Court determined ‘‘a full-scale economic
analysis of competitive effect’’ was not
required; due to the nature of the
conduct at issue, the Commission
merely needed to show the conduct
burdened ‘‘a not insubstantial portion of
commerce.’’ 238
In the cases described above, courts
condemned conduct under Section 5
based on the facial unfairness of the
conduct. In other cases, however, courts
have condemned restrictive or
exclusionary conduct under Section 5
based not on the facial unfairness of the
conduct, but on the impact of the
conduct on competition. For example,
in FTC v. Motion Picture Advertising
Service Co., the Court held an exclusive
dealing arrangement violated Section 5
where there was ‘‘substantial evidence’’
the contracts ‘‘unreasonably restrain
competition.’’ 239 Similarly, in L.G.
Balfour Co. v. FTC, the U.S. Court of
Appeals for the Seventh Circuit held a
firm’s exclusive dealing contracts
violated Section 5 where such contracts
were ‘‘anti-competitive.’’ 240 As the U.S.
Court of Appeals for the Sixth Circuit
stated in Hastings Manufacturing Co. v.
FTC, the Section 5 jurisprudence has
established that ‘‘acts [that are] not in
themselves illegal or criminal, or even
immoral, may, when repeated and
continued and their impact upon
commerce is fully revealed, constitute
an unfair method of competition within
the scope of the Commission’s authority
to regulate and forbid.’’ 241
For the reasons described below, the
Commission preliminarily finds the use
by employers of non-compete clauses is
an ‘‘unfair’’ method of competition
under Section 5. The Commission’s
preliminary findings differ based on
whether the worker is a senior
executive. For workers who are not
senior executives, the Commission
preliminarily finds the use by
employers of non-compete clauses is
‘‘unfair’’ under Section 5 in three
independent ways. First, non-compete
clauses are restrictive conduct that
negatively affects competitive
conditions. Second, non-compete
clauses are exploitative and coercive at
the time of contracting while burdening
238 381 U.S. at 370–71. See also Texaco, Inc., 393
U.S. at 230 (finding that the practice unfairly
burdened competition for a not insignificant
volume of commerce); R F. Keppel & Bro., 291 U.S.
at 309 (‘‘A practice so widespread and so far
reaching in its consequences is of public concern
if in other respects within the purview of the
statute.’’).
239 344 U.S. 392, 395–96 (1953).
240 442 F.2d 1, 14 (7th Cir. 1971).
241 153 F.2d 253, 257 (6th Cir. 1946).
a not insignificant volume of commerce.
Third, non-compete clauses are
exploitative and coercive at the time of
the worker’s potential departure from
the employer while burdening a not
insignificant volume of commerce.
For workers who are senior
executives, the Commission
preliminarily finds the use by
employers of non-compete clauses is
‘‘unfair’’ under Section 5 because such
non-compete clauses are restrictive
conduct that negatively affects
competitive conditions. As described
below in Part IV.A.1.a.ii, the
Commission preliminarily concludes
non-compete clauses for senior
executives may harm competition in
product markets in unique ways. The
second and third preliminary findings
described above—that non-compete
clauses are exploitative and coercive at
the time of contracting and at the time
of a worker’s potential departure—do
not apply to workers who are senior
executives.242
The Commission seeks comment on
whether this different unfairness
analysis should apply to other highly
paid or highly skilled workers who are
not senior executives. Furthermore, in
Part VI.C below, the Commission seeks
comment on how this category of
workers—whether ‘‘senior executives’’
or a broader category of highly paid or
highly skilled workers—should be
defined, and whether different
regulatory standards should apply to
this category of workers.
The Commission seeks comment on
its preliminary finding that non-
compete clauses are an ‘‘unfair’’ method
of competition under Section 5.
a. Non-Compete Clauses Are Restrictive
Conduct That Negatively Affects
Competitive Conditions
First, the Commission preliminarily
finds non-compete clauses are an
‘‘unfair’’ method of competition under
Section 5 because they are restrictive
conduct that negatively affects
competitive conditions.
As noted above, courts have
condemned restrictive or exclusionary
conduct under Section 5 based not on
the facial unfairness of the conduct, but
on the impact of the conduct on
competition.243 Non-compete clauses
are restrictive conduct. By their express
242 As described below in Part VII.B.1.a.iv, the
Commission estimates that, when non-compete
clauses are more enforceable, CEO earnings are
reduced. This may result from the negative effects
on competitive conditions that non-compete clauses
have on labor markets (discussed in greater detail
below in Part IV.A.1.a.i) rather than from
exploitation or coercion.
243 See supra Part IV.A.1.
terms, non-compete clauses restrict a
worker’s ability to work for a competitor
of the employer—for example, by
accepting a job with a competitor or
starting a business that would compete
against the employer. Non-compete
clauses also restrict rivals from
competing against the employer to
attract their workers. Because non-
compete clauses facially restrain
competition in the labor market, courts
have long held they are restraints of
trade and proper subjects for scrutiny
under the antitrust laws.244
Furthermore, as described in detail in
this NPRM, there is considerable
empirical evidence showing non-
compete clauses negatively affect
competition in labor markets and
product and service markets.245 This
evidence is summarized below.
i. Non-Compete Clauses Negatively
Affect Competitive Conditions in Labor
Markets
As described in greater detail above in
Part II.B.1, non-compete clauses
negatively affect competitive conditions
in labor markets by obstructing the
sorting of workers and employers into
the strongest possible matches. Labor
markets function by matching workers
and employers. In a well-functioning
labor market, a worker who is seeking
a better job—more pay, better working
conditions, more enjoyable work, or
whatever the worker may be seeking—
can enter the labor market by looking for
work. Employers who have positions
available compete for the worker’s
services. The worker’s current employer
may also compete with these
prospective employers by seeking to
retain the worker—for example, by
offering to raise the worker’s pay or
promote the worker. Ultimately, the
worker chooses the job that best meets
their objectives. In general, the more
jobs available—i.e., the more options the
worker has—the greater the possibility
the worker will find a strong match.
Just as employers compete for workers
in a well-functioning labor market,
244 See, e.g., Am. Tobacco Co., 221 U.S. at 181–
83 (holding several tobacco companies violated
Sections 1 and 2 of the Sherman Act due to the
collective effect of six of the companies’ practices,
one of which was the ‘‘constantly recurring’’ use of
non-compete clauses); Newburger, Loeb & Co., Inc.,
563 F.2d at 1082 (‘‘Although such issues have not
often been raised in the federal courts, employee
agreements not to compete are proper subjects for
scrutiny under section 1 of the Sherman Act. When
a company interferes with free competition for one
of its former employee’s services, the market’s
ability to achieve the most economically efficient
allocation of labor is impaired. Moreover,
employee-noncompetition clauses can tie up
industry expertise and experience and thereby
forestall new entry.’’)
245 See supra Part II.B.

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3501
workers compete for jobs. In general, the
more workers who are available—i.e.,
the more options the employer has—the
stronger the match the employer will
find. Through these processes—
employers competing for workers,
workers competing for jobs, and
employers and workers matching with
one another—competition in the labor
market leads to higher earnings for
workers, greater productivity for
employers, and better economic
conditions.
In a perfectly competitive labor
market, if a job that a worker would
prefer more—for example, because it
has higher pay or is in a better
location—were to become available, the
worker could switch to it quickly and
easily. However, this perfectly
competitive labor market exists only in
theory. In practice, labor markets
substantially deviate from perfect
competition. Non-compete clauses, in
particular, impair competition in labor
markets by restricting a worker’s ability
to change jobs. If a worker is bound by
a non-compete clause, and the worker
wants a better job, the non-compete
clause will prevent the worker from
accepting a new job within the scope of
the non-compete clause. These will
often be the most natural alternative
employment options for a worker: jobs
in the same geographic area and in the
worker’s field of expertise. The result is
less competition among employers for
the worker’s services. Since the worker
is prevented from taking these jobs, the
worker may decide not to enter the labor
market at all, or the worker may enter
the labor market but take a job outside
of their field of expertise in which they
are less productive.
Non-compete clauses affect
competition in labor markets through
their use in the aggregate. The effect of
an individual worker’s non-compete
clause on competition in a particular
labor market may be marginal or may be
impossible to discern statistically.
However, the use of a large number of
non-compete clauses across a labor
market demonstrably affects the
opportunities of all workers in that
market. By making it more difficult for
many workers in a labor market to
switch to new jobs, non-compete
clauses inhibit optimal matches from
being made between employers and
workers across the labor force. As a
result, where non-compete clauses are
prevalent in a market, workers are more
likely to remain in jobs that are less
optimal with respect to the worker’s
ability to maximize their productive
capacity. This materially reduces wages
for workers—not only for workers who
are subject to non-compete clauses, but
other workers in a labor market as well,
since jobs that would otherwise be
better matches for an unconstrained
worker are filled by workers subject to
non-compete clauses.
The Section 5 analysis as to whether
conduct negatively affects competitive
conditions does not require a showing
that the conduct caused actual harm.246
However, whether conduct causes
actual harm can be relevant to whether
it is an unfair method of competition.247
There is significant empirical evidence
that non-compete clauses cause actual
harm to competition in labor markets,
and that these harms are substantial.
As described above in Part II.B.1.a,
the Commission estimates at least one in
five American workers—or
approximately 30 million workers—is
bound by a non-compete clause. The
proliferation of non-compete clauses is
restraining competition in labor markets
to such a degree that it is materially
impacting workers’ earnings—both
across the labor force in general, and
also specifically for workers who are not
subject to non-compete clauses. The
available evidence indicates increased
enforceability of non-compete clauses
substantially reduces workers’ earnings,
on average, across the labor market
generally or for specific types of
workers.248 The Commission estimates
the proposed rule, which would
prohibit employers from using non-
compete clauses, would increase
workers’ total earnings by $250 to $296
billion per year.249
In addition to the evidence showing
non-compete clauses reduce earnings
for workers across the labor force, there
is also evidence non-compete clauses
reduce earnings specifically for workers
who are not subject to non-compete
clauses.250 One study finds when the
use of non-compete clauses by
employers increases, that drives down
246 See Fed. Trade Comm’n v. Sperry &
Hutchinson Co., 405 U.S. 233, 244 (1972)
(explaining that ‘‘unfair competitive practices [are]
not limited to those likely to have anticompetitive
consequences after the manner of the antitrust
laws’’); In re Coca-Cola Co., 117 F.T.C. 795, 915
(FTC 1994) (rejecting argument that Section 5
violation requires showing ‘‘anticompetitive
effects’’).
247 See Ethyl, 729 F.2d at 138 (evidence of actual
harm can be ‘‘a relevant factor in determining
whether the challenged conduct is unfair’’).
248 See supra Part II.B.1. While there is evidence
that increased enforceability of non-compete
clauses increases the rate of earnings growth for
physicians, Lavetti, Simon, & White, supra note 53
at 1051, the Commission estimates that the
proposed rule may increase physicians’ earnings,
although the study does not allow for a precise
calculation. See infra Part VII.B.1.a.ii.
249 See infra Part VII.B.1 (describing the
Commission’s assessment of the benefits of the
proposed rule).
250 See supra Part II.B.1.c.
wages for workers who do not have non-
compete clauses but who work in the
same state and industry. This study also
finds this effect is stronger where non-
compete clauses are more enforceable.
This study shows the reduction in
earnings (and also reduced labor
mobility) is due to a reduction in the
rate of the arrival of job offers.251
Another study finds similarly that
changes in non-compete clause
enforceability in one state have negative
impacts on workers’ earnings in
bordering states and that the effects are
nearly as large as the effects in the state
in which enforceability changed (though
the effect tapers off as the distance to
the bordering state increases).252 The
authors conclude that, since the workers
across the border are not directly
affected by the law change—because
contracts that they have signed do not
become more or less enforceable—this
effect must be due to changes in the
local labor market.253
The Commission preliminarily
concludes non-compete clauses
negatively affect competitive conditions
in labor markets regardless of the
worker’s income or job function.
Whether a worker is a senior executive
or a security guard, non-compete
clauses block the worker from switching
to a job in which they would be better
paid and more productive—restricting
that worker’s opportunities as well as
the opportunities of other workers in the
relevant labor market. The available
data do not allow the Commission to
estimate earnings effects for every
occupation. However, the evidentiary
record indicates non-compete clauses
depress wages for a wide range of
subgroups of workers across the
spectrum of income and job function.
The Commission therefore estimates the
proposed rule would increase earnings
for workers in all of the subgroups of the
labor force for which sufficient data is
available.254
The Commission seeks comment on
its preliminary finding that non-
compete clauses negatively affect
competitive conditions in labor markets.
ii. Non-Compete Clauses Negatively
Affect Competitive Conditions in
Markets for Products and Services
The adverse effects of non-compete
clauses on product and service markets
largely result from reduced labor
mobility. Several studies show the use
of non-compete clauses by employers
251 Starr, Frake, & Agarwal, supra note 76 at 4.
252 Johnson, Lavetti, & Lipsitz, supra note 63 at
51.
253 Id. at 30.
254 See infra Part VII.B.1.a.

3502 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
reduces labor mobility. All of these
studies have found decreased rates of
labor mobility, as measured by job
separations, hiring rates, job-to-job
mobility, implicit mobility defined by
job tenure, and within- and between-
industry mobility.255 The Commission
does not view reduced labor mobility
from non-compete clauses—in and of
itself—as evidence that non-compete
clauses negatively affect competition in
product and service markets. Instead,
reduced labor mobility is best
understood as the primary driver of the
effects in product and service markets
the Commission is concerned about.
Reduced labor mobility from non-
compete clauses negatively affects
competitive conditions in product and
service markets in several respects.
First, there is evidence non-compete
clauses increase consumer prices and
concentration in the health care sector.
There is also evidence non-compete
clauses increase industrial
concentration more broadly. Non-
compete clauses may have these effects
by inhibiting entrepreneurial ventures
(which could otherwise enhance
competition in goods and service
markets) or by foreclosing competitors’
access to talented workers.256
Second, non-compete clauses
foreclose the ability of competitors to
access talent by effectively forcing
future employers to buy out workers
from their non-compete clauses if they
want to hire them. Firms must either
make inefficiently high payments to buy
workers out of non-compete clauses
with a former employer, which leads to
deadweight economic loss, or forego the
payment—and, consequently, the access
to the talent the firm seeks. Whatever
choice a firm makes, its economic
outcomes in the market are harmed,
relative to a scenario in which no
workers are bound by non-compete
clauses. There is evidence of this
mechanism in the market for CEOs.257
Third, the weight of the evidence
indicates non-compete clauses have a
negative impact on new business
formation. New business formation
increases competition first by bringing
new ideas to market, and second, by
forcing incumbent firms to respond to
new firms’ ideas instead of stagnating.
Non-compete clauses restrain new
business formation by preventing
workers subject to non-compete clauses
from starting their own businesses. In
addition, firms are more willing to enter
markets in which they know there are
potential sources of skilled and
255 See supra Part II.B.2.
256 See supra Part II.B.2.a.
257 See supra Part II.B.2.b.
experienced labor, unhampered by non-
compete clauses.258
Fourth, the weight of the evidence
indicates non-compete clauses decrease
innovation. Innovation may directly
improve economic outcomes by
increasing product quality or decreasing
prices, or may promote competition
because successful new products and
services force competing firms to
improve their own products and
services. Non-compete clauses affect
innovation by reducing the movement
of workers between firms, which
decreases knowledge flow between
firms. Non-compete clauses also prevent
workers from starting businesses in
which they can pursue innovative new
ideas.259
As noted above in Part II.B.2.e, there
is also evidence non-compete clauses
increase employee training and other
forms of investment. The Commission
considers this evidence below in Part
IV.B as part of its analysis of the
justifications for non-compete clauses.
The Commission believes non-
compete clauses for senior executives
may harm competition in product
markets in unique ways, to the extent
that senior executives may be likely to
start competing businesses, be hired by
potential entrants or competitors, or
lead the development of innovative
products and services. Non-compete
clauses for senior executives may also
block potential entrants, or raise their
costs, to a high degree, because such
workers are likely to be in high demand
by potential entrants. As a result,
prohibiting non-compete clauses for
senior executives may have relatively
greater benefits for consumers than
prohibiting non-compete clauses for
other workers. The Commission seeks
comment on this analysis as well as
whether this reasoning may apply to
highly paid and highly skilled workers
who are not senior executives.
The Commission seeks comment on
its preliminary finding that non-
compete clauses negatively affect
competitive conditions in markets for
products and services.
b. Non-Compete Clauses Are
Exploitative and Coercive at the Time of
Contracting
The Commission preliminarily finds
non-compete clauses for workers other
than senior executives are exploitative
and coercive because they take
advantage of unequal bargaining power
between employers and workers at the
time the employer and worker enter into
the non-compete clause.
258 See supra Part II.B.2.c.
259 See supra Part II.B.2.d.
As noted above, courts have held
conduct that is exploitative and coercive
can violate Section 5 where it burdens
a not insignificant volume of
commerce.260 Courts have long
recognized bargaining power between
employers and workers is unequal and,
as a result, workers are vulnerable to
exploitation and coercion through the
use of non-compete clauses at the time
of contracting. Courts have expressed
this concern since at least the early
eighteenth century. In the foundational
English case Mitchel v. Reynolds, the
court cited ‘‘the great abuses these
voluntary restraints are liable to . . .
from masters, who are apt to give their
apprentices much vexation’’ by using
‘‘many indirect practices to procure
such bonds from them, lest they should
prejudice them in their custom, when
they come to set up for themselves.’’ 261
As another court stated, more recently:
The average, individual employee has
little but his labor to sell or to use to
make a living. He is often in urgent need
of selling it and in no position to object
to boiler plate restrictive covenants
placed before him to sign. To him, the
right to work and support his family is
the most important right he possesses.
His individual bargaining power is
seldom equal to that of his
employer. . . . Under pressure of need
and with little opportunity for choice,
he is more likely than the seller to make
a rash, improvident promise that, for the
sake of present gain, may tend to impair
his power to earn a living, impoverish
him, render him a public charge or
deprive the community of his skill and
training.262
Indeed, courts have cited the
imbalance of bargaining power between
workers and employers as a central
reason for imposing stricter scrutiny on
non-compete clauses between
employers and workers than on non-
compete clauses between businesses or
between the seller and buyer of a
business.263
The imbalance of bargaining power
between employers and workers results
from several factors. Many of these
260 See supra Part IV.A.1.
261 1 P. Wms. at 190.
262 Arthur Murray Dance Studios of Cleveland v.
Witter, 105 NE2d 685, 703–04 (Ohio Ct. Com. Pl.
1952). See also Restatement (Second) of Contracts
(1981) sec. 188 cmt. g (‘‘Postemployment restraints
are scrutinized with particular care because they are
often the product of unequal bargaining power and
because the employee is likely to give scant
attention to the hardship he may later suffer
through loss of his livelihood.’’).
263 See, e.g., Alexander & Alexander, Inc. v.
Danahy, 488 NE2d 22, 29 (Mass. App. Ct. 1986);
Diepholz v. Rutledge, 659 NE 989, 991 (Ill. Ct. App.
1995); Palmetto Mortuary Transp., Inc. v. Knight
Sys., Inc., 818 SE2d 724, 731 (S.C. 2018).

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3503
factors relate to the nature of the
employer-worker relationship in the
United States generally. Most workers
depend on income from their jobs to get
by—to pay their rent or mortgage, pay
their bills, and keep food on the table.
For these workers, particularly the many
workers who live paycheck to paycheck,
loss of a job or a job opportunity can
severely damage their finances.264 For
these reasons, the loss of a job or an
employment opportunity is far more
likely to have serious financial
consequences for a worker than the loss
of a worker or a job candidate would
have for most employers. In addition,
employers generally have considerable
labor market power, due to factors such
as concentration and the difficulty of
searching for a job.265 The considerable
labor market power of employers has
significantly diminished the bargaining
power of U.S. workers.266
Several additional factors contribute
to the imbalance of bargaining power
between employers and workers
generally. These include the decline in
union membership, which forces more
workers to negotiate with their
employers individually; 267 increased
reliance by employers on various forms
of outsourcing, which allows employers
to fill persistent vacancies without
having to raise wages or improve
conditions for incumbent workers; 268
and the proliferation of no-poaching
agreements, which limit the mobility of
workers and, as a result, their bargaining
power.269
While the employer-worker
relationship is defined by an imbalance
of bargaining power generally, the
imbalance of bargaining power is
particularly acute in the context of
negotiating employment terms such as
264 See, e.g., Jennie E. Brand, The Far-Reaching
Impact of Job Loss and Unemployment, 41 Ann.
Rev. of Socio. 359 (2015); CareerBuilder, Living
Paycheck to Paycheck is a Way of Life for Majority
of U.S. Workers, According to New CareerBuilder
Survey (Aug. 24, 2017), https://
press.careerbuilder.com/2017-08-24-Living-
Paycheck-to-Paycheck-is-a-Way-of-Life-for-Majority-
of-U-S-Workers-According-to-New-CareerBuilder-
Survey (reporting that 78% of American workers
live paycheck to paycheck); Jeff Ostrowski,
Bankrate, Survey: Fewer than 4 in 10 Americans
could pay a surprise $1,000 bill from savings (Jan.
11, 2021), https://www.bankrate.com/banking/
savings/financial-security-january-2021/.
265 Treasury Labor Market Competition Report,
supra note 41 at i–ii.
266 Id. at ii (‘‘As this report highlights, a careful
review of the credible academic studies places the
decrease in wages at roughly 20 percent relative to
the level in a fully competitive market’’).
267 See, e.g., Alan Krueger, Luncheon Address:
Reflections on Dwindling Worker Bargaining Power
and Monetary Policy at 272 (Aug. 24, 2018), https://
www.kansascityfed.org/Jackson%20Hole/
documents/6984/Lunch_JH2018.pdf.
268 Id.
269 Id. at 273.
non-compete clauses, for several
reasons. First, as courts have long
recognized, employers are repeat
players who are likely to have greater
experience and skill at bargaining, in
the context of negotiating employment
terms, than individual workers.270
Second, and relatedly, workers are not
likely to seek the assistance of counsel
in reviewing employment terms,271
while employers are more likely to seek
the assistance of counsel in drafting
them.
Third, research indicates consumers
exhibit cognitive biases in the way they
consider contractual terms,272 and the
same may be true of workers.
Consumers rarely read standard-form
contracts.273 Consumers also tend to
focus their attention on a few salient
terms of the transaction, such as price
and quantity, and tend to disregard
other terms, particularly terms that are
relatively obscure.274 Consumers are
particularly likely to disregard
contingent terms—terms concerning
scenarios that may or may not come to
pass—or to be unable to assess what the
impact of those terms may be.275
Consumers also tend to disregard
onerous terms or terms that involve
difficult trade-offs, such as giving up
legal rights or future opportunities.276
Workers likely display similar cognitive
biases in the way they consider
employment terms. These reasons
explain why the imbalance of
bargaining power between workers and
employers is particularly high in the
context of negotiating employment
terms such as non-compete clauses.
There is considerable evidence
employers are exploiting this imbalance
of bargaining power through the use of
non-compete clauses. Non-compete
clauses are typically standard-form
270 See, e.g., Samuel Stores, Inc. v. Abrams, 108
A. 541, 543 (Conn. 1919).
271 In one survey, only 7.9% of workers with non-
compete clauses reported consulting a lawyer in
connection with the non-compete clause. Starr,
Prescott, & Bishara, supra note 42, at 72.
272 See, e.g., Arnow-Richman (2006), supra note
56 at 981; Russell Korobkin, Bounded Rationality,
Standard Form Contracts, and Unconscionability,
70 U. Chi. L. Rev. 1203, 1206 (2003); Robert
Hillman & Jeffrey Rachlinski, Standard-Form
Contracting in the Electronic Age, 77 N.Y.U. L. Rev.
429, 450–54 (2002).
273 Korobkin, supra note 272 at 1206.
274 Arnow-Richman (2006), supra note 56 at 981;
Hillman & Rachlinksi, supra note 272 at 452.
275 See, e.g., Estlund, supra note 144 at 413
(2006). See also Fed. Trade Comm’n, Credit
Practices Rule, 49 FR 7740, 7744 (Mar. 1, 1984)
(noting that consumers tend disregard contingent
provisions and concentrate their search on factors
such as interest rates and payment terms).
276 Arnow-Richman (2006), supra note 56 at 981;
Korobkin, supra note 272 at 1203–31.
contracts,277 which, as noted above,
workers are not likely to read. The
evidence shows workers rarely bargain
over non-compete clauses 278 and rarely
seek the assistance of counsel in
reviewing non-compete clauses.279
Furthermore, research indicates that, in
states where non-compete clauses are
unenforceable, workers are covered by
non-compete clauses at roughly the
same rate as workers in other states,280
suggesting that employers may believe
workers are unaware of their legal
rights, or that employers may be seeking
to take advantage of workers’ lack of
knowledge of their legal rights. In
addition, there is evidence employers
often provide workers with non-
compete clauses after they have
accepted the job offer—in some cases,
on or after their first day of work—when
the worker’s negotiating power is at its
weakest, since the worker may have
turned down other job offers or left their
previous job.281
Because there is a considerable
imbalance of bargaining power between
workers and employers in the context of
negotiating employment terms, and
because employers take advantage of
this imbalance of bargaining power
through the use of non-compete clauses,
the Commission preliminarily finds
non-compete clauses are exploitative
and coercive at the time of contracting.
As noted above, for coercive conduct
to constitute unfair method of
competition, it must also burden a not
insignificant volume of commerce. The
Commission preliminarily finds non-
compete clauses burden a not
insignificant volume of commerce due
to their negative effects on competitive
conditions in labor markets and product
and service markets, which are
described above.282
This preliminary finding does not
apply to workers who are senior
executives. Non-compete clauses for
senior executives are unlikely to be
exploitative or coercive at the time of
contracting, because senior executives
are likely to negotiate the terms of their
employment and may often do so with
the assistance of counsel. The
Commission seeks comment on whether
there are other categories of highly paid
or highly skilled workers (i.e., other
277 Starr, Prescott, & Bishara, supra note 42 at 72
(‘‘Taken together, the evidence in this section
indicates that employers present (or employees
receive) noncompete proposals as take-it-or-leave-it
propositions.’’).
278 Id.
279 Id.
280 Id. at 81.
281 Marx (2011), supra note 55 at 706.
282 See supra Part IV.A.1.a.i–ii.

3504 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
than senior executives) to whom this
preliminary finding should not apply.
The Commission seeks comment on
all aspects of its preliminary finding
that non-compete clauses are
exploitative and coercive at the time of
contracting.
c. Non-Compete Clauses Are
Exploitative and Coercive at the Time of
the Worker’s Potential Departure From
the Employer
The Commission preliminarily finds
non-compete clauses for workers other
than senior executives are exploitative
and coercive at the time of the worker’s
potential departure from the employer,
because they force a worker to either
stay in a job they want to leave or
choose an alternative that likely impacts
their livelihood.
For most workers who want to leave
their jobs, the most natural employment
options will be work in the same field
and in the same geographic area.
However, where a worker is bound by
a non-compete clause, the worker’s
employment options are significantly
limited. A worker who is subject to a
non-compete clause, and who wants to
leave their job, faces an undesirable
choice that will likely affect their
livelihood: either move out of the area;
leave the workforce for a period of time;
leave their field for period of time; pay
the employer a sum of money to waive
the non-compete clause; or violate the
non-compete clause and risk a lawsuit
from the employer. By forcing a worker
who wants to leave their job to either
stay in their job or take an action that
will likely negatively affect their
livelihood, non-compete clauses coerce
workers into remaining in their current
jobs. Courts have long expressed
concern about this coercive effect of
non-compete clauses—that non-compete
clauses may threaten a worker’s
livelihood if they leave their job.283
Workers have an inalienable right to
quit their jobs.284 The Supreme Court
has described this ‘‘right to change
employers’’ as a critical ‘‘defense against
oppressive hours, pay, working
conditions, or treatment.’’ 285 Strictly
speaking, non-compete clauses do not
prevent workers from quitting their jobs.
However, non-compete clauses ‘‘burden
the ability to quit, and with it the ability
to demand better wages and working
conditions and to resist oppressive
conditions in the current job.’’ 286 Non-
283 See, e.g., Mitchel, 1 P. Wms. at 190 (citing ‘‘the
mischief which may arise from [non-compete
clauses] . . . to the party, by the loss of his
livelihood’’).
284 Bailey v. Alabama, 219 U.S. 219, 242 (1911).
285 Pollock v. Williams, 322 U.S. 4, 17–18 (1944).
286 See Estlund, supra note 144 at 407.
compete clauses burden the ability to
quit by forcing workers to either remain
in their current job or, as described
above, take an action—such as leaving
the labor force for a period of time or
taking a job in a different field—that
would likely affect their livelihood. For
this reason, the Commission finds non-
compete clauses are exploitative and
coercive at the time of the worker’s
potential departure.
As noted above, for coercive conduct
to constitute unfair method of
competition, it must also burden a not
insignificant volume of commerce. The
Commission preliminarily finds non-
compete clauses burden a not
insignificant volume of commerce due
to their negative effects on competitive
conditions in labor markets and product
and service markets, which are
described above.287
This preliminary finding does not
apply to workers who are senior
executives. Non-compete clauses for
senior executives are unlikely to be
exploitative or coercive at the time of
the executive’s departure. Because many
senior executives negotiate their non-
compete clauses with the assistance of
expert counsel, they are likely to have
bargained for a higher wage or more
generous severance package in exchange
for agreeing to the non-compete
clause.288 The Commission seeks
comment on whether there are other
categories of highly paid or highly
skilled workers (i.e., other than senior
executives) to whom this preliminary
finding should not apply.
The Commission seeks comment on
all aspects of its preliminary finding
that non-compete clauses are
exploitative and coercive at the time of
the worker’s potential departure from
the employer.
2. Non-Compete Clauses Are a Method
of Competition
For conduct to be an ‘‘unfair method
of competition’’ under Section 5, it must
be both ‘‘unfair’’ and a ‘‘method of
competition.’’ In Ethyl, the court
distinguished between a ‘‘condition’’ of
a marketplace, such as an oligopolistic
market structure, and a ‘‘method’’ of
competition, which it described as
‘‘specific conduct which promotes’’ an
anticompetitive result.289 When an
287 See supra Part IV.A.1.a.i–ii.
288 See, e.g., Stewart J. Schwab & Randall S.
Thomas, An Empirical Analysis of CEO
Employment Contracts: What Do Top Executives
Bargain For?, 63 Wash. & Lee L. Rev. 231, 256–57
(2006) (noting that 84% of CEO employment
contracts that included both a non-compete clause
and a severance payment have a severance payment
that is equal to or greater than the length of the non-
competition period).
289 729 F.2d at 139.
employer uses a non-compete clause, it
undertakes conduct in a marketplace.
This conduct implicates competition;
indeed, it has demonstrable effects on
competition in both labor markets and
markets for products and services.290
For these reasons, the Commission
preliminarily finds non-compete clauses
are a method of competition under
Section 5. The Commission seeks
comment on this preliminary finding.
B. The Justifications for Non-Compete
Clauses Do Not Alter the Commission’s
Preliminary Determination
For the reasons described above in
Part IV.A, the Commission preliminarily
determines non-compete clauses are an
unfair method of competition under
Section 5. In this Part IV.B, the
Commission preliminarily finds the
justifications for non-compete clauses
do not alter the Commission’s
preliminary determination that non-
compete clauses are an unfair method of
competition.
The circumstances under which a
business justification can overcome a
finding that conduct is an unfair method
of competition are narrow. In Fashion
Originators’ Guild of America v. FTC,
the Court held that, in light of ‘‘the
purpose and object of this combination,
its potential power, its tendency to
monopoly, [and] the coercion it could
and did practice upon a rival method of
competition,’’ the Commission did not
err by refusing to hear evidence related
to justifications, ‘‘for the reasonableness
of the methods pursued by the
combination to accomplish its unlawful
object is no more material than would
be the reasonableness of the prices fixed
by unlawful combination.’’ 291 In
Atlantic Refining, the Court similarly
held the Commission did not err by
refusing to consider ‘‘evidence of
economic justification for the program,’’
because, while the arrangements at issue
‘‘may well provide Atlantic with an
economical method of assuring efficient
product distribution among its dealers
. . . the Commission was clearly
justified in refusing the participants an
opportunity to offset these evils by a
showing of economic benefit to
themselves.’’ 292
Similarly, in L.G. Balfour Co., the
Commission challenged as an unfair
method of competition the use of
exclusive dealing contracts by a firm
that manufactured and sold jewelry and
other items bearing the insignia of
fraternities and high schools. The firm
argued the contracts were justified, in
290 See supra Part II.B.
291 312 U.S. at 467–68.
292 381 U.S. at 371.

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3505
part because the fraternities and schools
benefitted from uniformity in the design
and workmanship of the items. The
court reasoned ‘‘[w]hile it is relevant to
consider the advantages of a trade
practice on individual companies in the
market, this cannot excuse an otherwise
illegal business practice.’’ 293 The court
found the exclusive contracts were not
justified, because the fraternities and
schools had other means for
accomplishing the goal of maintaining
high quality for their jewelry and
because the firm did not establish that
its competitors could not satisfy its
customers’ needs.294
In this Part IV.B, the Commission
considers the commonly cited business
justifications for non-compete clauses
but preliminarily finds they do not alter
the Commission’s preliminary
determination that non-compete clauses
are an unfair method of competition, for
two reasons. First, employers have
alternatives to non-compete clauses that
reasonably achieve the same purposes
while burdening competition to a less
significant degree. Second, the asserted
benefits from these commonly cited
justifications do not outweigh the
considerable harm from non-compete
clauses.
1. Commonly Cited Justifications for
Non-Compete Clauses
The most cited justifications for non-
compete clauses are that they increase
employers’ incentive to make
productive investments, including in
worker training, client attraction, or in
creating or sharing trade secrets with
workers. According to these
justifications, without non-compete
clauses, employment relationships are
subject to an investment hold-up
problem. Investment hold-up occurs
where an employer—faced with the
possibility a worker may depart after
receiving some sort of valuable
investment—opts not to make that
investment in the first place, thereby
decreasing the firm’s productivity and
overall social welfare. For example,
according to these justifications, an
employer may be more reticent to invest
in trade secrets or other confidential
information; to share this information
with its workers; or to train its workers
if it knows the worker may depart for or
may establish a competing firm. Courts
have cited these justifications when
upholding non-compete clauses under
state common law or antitrust law.295
293 442 F.2d at 15, citing Motion Picture Advert.
Serv. Co., 344 U.S. 392.
294 Id. at 14–15.
295 See, e.g., U.S. v. Addyston Pipe & Steel Co.,
85 F. 271, 281 (6th Cir. 1898); Polk Bros., Inc. v.
As described above in Part II.B.2.e,
there is evidence non-compete clauses
increase worker training and capital
investment (e.g., investment in physical
assets, such as machines). Non-compete
clauses may increase an employer’s
incentive to train their workers or invest
in capital equipment because workers
bound by non-compete clauses are less
likely to leave their jobs for competitors.
The author of the study assessing effects
on capital investment finds there are
likely two mechanisms driving these
effects. First, firms may be more likely
to invest in capital when they train their
workers because worker training and
capital expenditure are complementary
(i.e., the return on investment in capital
equipment is greater when workers are
more highly trained). Second, non-
compete clauses reduce competition,
and firms’ returns to capital expenditure
are greater when competition is lower,
incentivizing firms to invest more in
capital.296
The Commission is not aware of any
evidence of a relationship between the
enforceability of non-compete clauses
and the rate at which companies make
other types of productive investments,
such as investments in creating or
sharing trade secrets. Similarly, the
Commission is not aware of any
evidence non-compete clauses reduce
trade secret misappropriation or the loss
of other types of confidential
information. The Commission’s
understanding is there is little reliable
empirical data on trade secret theft and
firm investment in trade secrets in
general, and no reliable data on how
non-compete clauses affect these
practices. The Commission understands
these are difficult areas for researchers
to study, due to, for example, the lack
of a governmental registration
requirement for trade secrets and the
unwillingness of firms to disclose
information about their practices related
to trade secrets.297
The Commission is also not aware of
any evidence that increased investment
due to non-compete clauses leads to
reduced prices for consumers. Indeed,
the only empirical study of the effects
of non-compete clauses on consumer
prices—in the health care sector—finds
increased final goods prices as the
enforceability of non-compete clauses
increases.298
Forest City Enters., 776 F.2d 185, 189 (7th Cir.
1985).
296 Jeffers, supra note 92 at 29.
297 See, e.g., David S. Levine & Christopher B.
Seaman, The DTSA at One: An Empirical Study of
the First Year of Litigation Under the Defend Trade
Secrets Act, 53 Wake Forest L. Rev. 105, 120–22
(2018).
298 See supra Part II.B.2.a.
2. Employers Have Alternatives to Non-
Compete Clauses for Protecting Valuable
Investments
There are two reasons why the
business justifications for non-compete
clauses do not alter the Commission’s
preliminary determination non-compete
clauses are an unfair method of
competition. The first is employers have
alternatives to non-compete clauses for
protecting valuable investments. These
alternatives may not be as protective as
employers would like, but they
reasonably accomplish the same
purposes as non-compete clauses while
burdening competition to a less
significant degree.
As noted above, the most commonly
cited justifications for non-compete
clauses are that they increase an
employer’s incentive to make
productive investments—such as
investing in trade secrets or other
confidential information, sharing this
information with its workers, or training
its workers—because employers may be
more likely to make such investments if
they know workers are not going to
depart for or establish a competing firm.
However, non-compete clauses restrict
considerably more activity than
necessary to achieve these benefits.
Rather than restraining a broad scope of
beneficial competitive activity—by
barring workers altogether from leaving
work with the employer for a competitor
and starting a business that would
compete with the employer—employers
have alternatives for protecting valuable
investments that are much more
narrowly tailored to limit impacts on
competitive conditions. These
alternatives restrict a considerably
smaller scope of beneficial competitive
activity than non-compete clauses
because—while they may restrict an
employee’s ability to use or disclose
certain information—they generally do
not prevent workers from working for a
competitor or starting their own
business altogether.299
a. Trade Secret Law
Trade secret law provides employers
with an alternative means of protecting
their investments in trade secrets. Trade
secret law is a form of intellectual
property law that protects confidential
299 See, e.g., MAI Basic Four, Inc. v. Basis, Inc.,
880 F.2d 286, 287–88 (10th Cir. 1989) (stating that
workers subject to NDAs—unlike workers subject to
non-compete clauses—‘‘remain free to work for
whomever they wish, wherever they wish, and at
whatever they wish,’’ subject only to the terms that
prohibit them from disclosing or using certain
information.’’).

3506 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
business information.300 It also serves as
an alternative to the patent system,
‘‘granting proprietary rights to particular
technologies, processes, designs, or
formulae that may not be able to satisfy
the rigorous standards for
patentability.’’ 301 Even where
information meets standards for
patentability, companies may choose to
rely on trade secret law and not obtain
a patent, because they wish to keep
information out of the public domain.302
Trade secret law has developed
significantly in recent decades. Prior to
the late 1970s, trade secret law across
the states was inconsistent, leading to
significant uncertainty regarding the
scope of trade secret protections and the
appropriate remedies for
misappropriation.303 Recognizing the
need for more uniform laws, the
American Bar Association approved the
Uniform Trade Secrets Act (‘‘UTSA’’) in
1979.304 Forty-seven states and the
District of Columbia have adopted the
UTSA.305 The three states that have not
adopted the UTSA offer protection to
trade secrets under a different statute or
under common law.306
The UTSA provides a civil cause of
action for trade secret misappropriation,
which refers to disclosure or use of a
trade secret by a former employee
without express or implied consent.307
The UTSA also provides for injunctive
and monetary relief, including
compensatory damages, punitive
damages, and attorney’s fees.308 In some
states, under the ‘‘inevitable disclosure
doctrine,’’ courts may enjoin a worker
from working for a competitor of the
worker’s employer where it is inevitable
the worker will disclose trade secrets in
the performance of the worker’s job
duties.309 The inevitable disclosure
doctrine is highly controversial. Several
states have declined to adopt it
altogether, citing the doctrine’s harsh
effects on worker mobility.310 Other
states have required employers to meet
300 Brian T. Yeh, Protection of Trade Secrets:
Overview of Current Law and Legislation, Cong.
Rsch. Serv. Report R43714 (April 22, 2016) at 4.
301 Id.
302 Id. at 4–5.
303 Uniform Trade Secrets Act With 1985
Amendments (Feb. 11, 1986), Prefatory Note at 1.
304 Id. Prefatory Note at 3.
305 See Levine & Seaman, supra note 297 at 113.
306 Yeh, supra note 300 at 6 n.37.
307 UTSA, supra note 303 at sec. 1(2).
308 Id. at secs. 2–4.
309 See, e.g., PepsiCo, Inc. v. Redmond, 54 F.3d
1262 (7th Cir. 1995) (affirming the district court’s
order enjoining an employee from assuming his
responsibilities at a competing employer for six
months).
310 See Bayer Corp. v. Roche Molecular Sys., Inc.,
72 F. Supp. 2d 1111, 1120 (N.D. Cal. 1999); LeJeune
v. Coin Acceptors, Inc., 849 A.2d 451, 471 (Md.
2004).
high evidentiary burdens related to
inevitability, irreparable harm, and bad
faith before issuing an injunction
pursuant to the doctrine.311
In addition, in 2016, Congress enacted
the Defend Trade Secrets Act of 2016
(‘‘DTSA’’), which established a civil
cause of action under federal law for
trade secret misappropriation.312 The
DTSA brought the rights of trade secret
owners ‘‘into alignment with those long
enjoyed by owners of other forms of
intellectual property, including
copyrights, patents, and trademarks.’’ 313
Similar to state laws modeled on the
UTSA, the DTSA authorizes civil
remedies for trade secret
misappropriation, including injunctive
relief, damages (including punitive
damages), and attorney’s fees.314 The
DTSA also authorizes a court, in
‘‘extraordinary circumstances,’’ to issue
civil ex parte orders for the ‘‘seizure of
property necessary to prevent the
propagation or dissemination of the
trade secret that is the subject of the
action.’’ 315
Furthermore, trade secret theft is a
federal crime. The Economic Espionage
Act of 1996 (‘‘EEA’’) makes it a federal
crime to steal a trade secret for either (1)
the benefit of a foreign entity
(‘‘economic espionage’’) or (2) the
economic benefit of anyone other than
the owner (‘‘theft of trade secrets’’).316
The EEA authorizes substantial criminal
fines and penalties for these crimes.317
The EEA further authorizes criminal or
civil forfeiture, including of ‘‘any
property constituting, or derived from,
any proceeds obtained directly or
indirectly as a result of’’ an EEA
offense.318 The EEA also requires
offenders to pay restitution to victims of
trade secret theft.319
Under these laws, the term ‘‘trade
secret’’ is defined expansively and
includes a wide range of confidential
information. The UTSA generally
defines a ‘‘trade secret’’ as information
that (1) derives independent economic
value from not being generally known to
other persons who can obtain economic
value from its disclosure or use and (2)
is the subject of reasonable efforts to
311 See, e.g., Eleanore R. Godfrey, Inevitable
Disclosure of Trade Secrets: Employee Mobility v.
Employer Rights, 3. J. High Tech. L. 161 (2004).
312 Defend Trade Secrets Act of 2016, Public Law
114–153, 130 Stat. 376 (May 11, 2016).
313 U.S. Senate, Report to Accompany S. 1890, the
Defend Trade Secrets Act of 2016, S. Rept. 114–220
at 3.
314 18 U.S.C. 1836(b)(3).
315 18 U.S.C. 1836(b)(2).
316 18 U.S.C. 1831 (economic espionage); 18
U.S.C. 1832 (theft of trade secrets).
317 18 U.S.C. 1831–1832.
318 18 U.S.C. 1834, 2323.
319 18 U.S.C. 1834, 2323.
maintain its secrecy.320 The DTSA and
EEA use a similar definition.321 The
Supreme Court has held ‘‘some novelty’’
is required for information to be a trade
secret, because ‘‘that which does not
possess novelty is usually known.’’ 322
Overall, the definition of ‘‘trade secret’’
covers a wide range of information
employers seek to protect from
disclosure. As the high court of one
state noted, ‘‘[t]here is virtually no
category of information that cannot, as
long as the information is protected
from disclosure to the public, constitute
a trade secret.’’ 323
The viability of trade secret law as a
means for redressing trade secret theft is
illustrated by the fact that firms
regularly bring claims under trade secret
law. A recent analysis by the legal
analytics firm Lex Machina finds 1,382
trade secret lawsuits were filed in
federal court in 2021.324 Perhaps due to
the enactment of the DTSA, the number
of cases filed increased 30% from 2015
to 2017—from 1,075 to 1,396 cases—and
has remained steady ever since.325 In
addition, an analysis by the law firm
Morrison Foerster finds 1,103 trade
secret cases were filed in state courts in
2019.326 The number of cases filed in
state court has held steady since 2015,
when 1,161 cases were filed.327 The fact
that a considerable number of trade
secret lawsuits are filed in federal and
state court—approximately 2,500 cases
per year—and the fact that this number
has held steady for several years
suggests employers view trade secret
law as a viable means of obtaining
redress for trade secret theft.
In sum, intellectual property law
already provides significant legal
protections for an employer’s trade
secrets. Trade secret law may not be as
protective as some firms might like, but
overall, it provides employers with a
viable means of protecting their
investments in trade secrets.
b. Non-Disclosure Agreements
Employers that seek to protect
valuable investments also have the
320 UTSA, supra note 303 at sec. 1(4).
321 18 U.S.C. 1839(3).
322 Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470,
476 (1974).
323 U.S. West Commc’ns, Inc. v. Off. of Consumer
Advoc., 498 NW2d 711, 714 (Iowa 1993). See also
Confold Pac., Inc. v. Polaris Indus., Inc., 433 F.3d
952 (7th Cir. 2006) (Posner, J.).
324 Lex Machina, Infographic, Trade Secret
Litigation Report 2021, https://lexmachina.com/
resources/infographic-trade-secret-report/.
325 Kenneth A. Kuwayti, John R. Lanham, &
Candice F. Heinze, Morrison Foerster, Client Alert,
Happy Anniversary, DTSA: The Defend Trade
Secrets Act at Five (May 25, 2021).
326 Id.
327 Id.

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3507
ability to enter into NDAs with their
workers.328 NDAs, which are also
commonly known as confidentiality
agreements, are contracts in which a
party agrees not to disclose information
the contract designates as confidential.
NDAs may also prohibit workers from
using information that is designated as
confidential. If a worker violates an
NDA, the worker may be liable for
breach of contract.
Employers regularly use NDAs to
protect trade secrets and other
confidential business information.
Researchers estimate between 33% and
57% of U.S. workers are subject to at
least one NDA.329 In most states, NDAs
are more enforceable than non-compete
clauses.330
The widespread use of NDAs by firms
has raised concerns that NDAs may
inhibit innovation and worker
mobility.331 Scholars have also raised
concerns that overbroad NDAs can
function as de facto non-compete
clauses.332 However, the protection of
trade secrets and other limited
confidential business information is
widely recognized as a legitimate use of
NDAs.333
NDAs that are unusually broad in
scope may function as de facto non-
compete clauses, hence falling within
the scope of the proposed rule.334
However, appropriately tailored NDAs,
which would fall outside the scope of
the proposed rule,335 burden
competition to a lesser degree than non-
compete clauses. Such NDAs may
prevent workers from disclosing or
328 In this NPRM, we use the term ‘‘NDA’’ to refer
to contractual provisions that are designed to
protect trade secrets or other business information
that has economic value. Employers may also seek
to use NDAs to protect other kinds of information,
such as information about discrimination,
harassment, sexual assault, corporate wrongdoing,
or information that may disparage the company or
its executives or employees. These types of NDAs
have been widely criticized for, among other things,
their pernicious effects on workers. See, e.g., Rachel
Arnow-Richman et al., Supporting Market
Accountability, Workplace Equity, and Fair
Competition by Reining In Non-Disclosure
Agreements, UC-Hastings Research Paper
Forthcoming at 2–6 (January 2022), https://
papers.ssrn.com/sol3/papers.cfm?abstract_
id=4022812.
329 Id.
330 See Chris Montville, Reforming the Law of
Proprietary Information, 56 Duke L.J. 1159, 1179–
83 (2007).
331 See Rex N. Alley, Business Information and
Non-Disclosure Agreements: A Public Policy
Framework, 116 Nw. L. Rev. 817, 832 (2022).
332 See, e.g., Arnow-Richman et al., supra note
328 at 5. See also Brown, 57 Cal. App. 5th at 319.
333 See Montville, supra note 330 at 1179–83.
334 See proposed § 910.1(b)(2) (describing the
functional test for whether a contractual term is a
non-compete clause) and infra Part V (in the
section-by-section analysis for proposed § 910.1(b)).
335 Id.
using certain information, but they
generally do not prevent workers from
working for a competitor or starting
their own business altogether. As the
U.S. Court of Appeals for the Tenth
Circuit has stated, workers subject to
NDAs—unlike workers subject to non-
compete clauses—‘‘remain free to work
for whomever they wish, wherever they
wish, and at whatever they wish,’’
subject only to the terms that prohibit
them from disclosing or using certain
information.336
c. Other Means of Protecting Valuable
Investments
In addition to trade secret law and
NDAs, employers have additional
means of protecting valuable
investments. For example, if an
employer wants to prevent a worker
from leaving right after receiving
valuable training, the employer can sign
the worker to an employment contract
with a fixed duration. An employer can
establish a term of employment long
enough for the employer to recoup its
training investment without restricting a
worker’s ability to compete with the
employer after the worker’s employment
ends. Employers that wish to retain
their workers can also pay the worker
more, offer them better hours or better
working conditions, or otherwise
improve the conditions of their
employment. These are all viable
alternatives for protecting training
investments, and other investments an
employer may make, that do not restrict
a worker’s ability to work for a
competitor of the employer or a rival’s
ability to compete against the worker’s
employer to attract the worker.
Proponents of non-compete clauses
sometimes assert that, without non-
compete clauses, firms will be unable to
protect their trade secrets or other
valuable investments. However, there
are three states in which non-compete
clauses are generally unavailable to
employers today: California, North
Dakota, and Oklahoma. In these three
states, employers generally cannot
enforce non-compete clauses, so they
must protect their investments using
one or more of the alternatives
described above. The experiences of
these states suggest the alternatives
described above are fundamentally
viable for protecting valuable firm
investments.
Non-compete clauses have been void
in California since 1872, in North
Dakota since 1877, and in Oklahoma
since 1890.337 California is a state where
336 MAI Basic Four, Inc., 880 F.2d at 287–88.
337 Gilson, supra note 88 at 616 (California);
Werlinger v. Mutual Service Casualty Ins. Co., 496
large companies have succeeded—it is
home to four of the world’s ten largest
companies by market capitalization—
and it also maintains a vibrant startup
culture.338 Since the 1980s, California
has become the global center of the
technology sector, and technology firms
are highly dependent on protecting
trade secrets and other confidential
information.339 (Indeed, researchers
have posited that high-tech clusters in
California may have been aided by
increased labor mobility due to the
unenforceability of non-compete
clauses.340) In North Dakota and
Oklahoma, the energy industry has
thrived, and firms in the energy
industry depend on the ability to protect
trade secrets and other confidential
information.
The economic success in these three
states of industries highly dependent on
trade secrets and other confidential
information illustrates that companies
have viable alternatives to non-compete
clauses for protecting valuable
investments. Relative to non-compete
clauses, these alternatives are more
narrowly tailored to limit impacts on
competitive conditions.
The Commission seeks comment on
its preliminary finding that employers
have reasonable alternatives to non-
compete clauses for protecting their
investments.
3. The Asserted Benefits From These
Justifications Do Not Outweigh the
Harms From Non-Compete Clauses
The second reason why the
commonly cited business justifications
for non-compete clauses do not alter the
Commission’s preliminary
determination that non-compete clauses
are an unfair method of competition is
that, overall, the asserted benefits from
these justifications do not outweigh the
harms from non-compete clauses.
As described above, the Commission
preliminarily finds that, for some
workers, non-compete clauses are
exploitative and coercive because they
take advantage of unequal bargaining
power between employers and workers
at the time of contracting.341 The
N.W.2d 26, 30 (N.D. 1993) (North Dakota); Brandon
Kemp, Noncompetes in Oklahoma Mergers and
Acquisitions, 88 Okla. Bar J. 128 (Jan. 21, 2017)
(Oklahoma).
338 Josh Dylan, What Is Market Cap In Stocks?,
Nasdaq com (Aug, 12, 2022); Ewing Marion
Kauffman Found., State Entrepreneurship
Rankings, https://www.realclearpublicaffairs.com/
public_affairs/2019/02/25/kauffman_foundation_
state_entrepreneurship_rankings html.
339 See, e.g., Gilson, supra note 88 at 594–95.
340 Id.; Fallick, Fleischman, & Rebitzer, supra note
89.
341 See supra Part IV.A.1.b.

3508 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
Commission also preliminarily finds
that, for some workers, non-compete
clauses are exploitative and coercive at
the time of the worker’s potential
departure from the employer because
they force a worker to either stay in a
job they want to leave or choose an
alternative that likely impacts their
livelihood.342 For these workers, for
whom non-competes are facially unfair,
the justifications for non-compete
clauses must overcome a high bar to
alter the Commission’s preliminary
determination that non-compete clauses
are an unfair method of competition.343
In addition, non-compete clauses
cause considerable harm to competition
in labor markets and product and
service markets. There is evidence non-
compete clauses harm both workers and
consumers. Non-compete clauses
obstruct competition in labor markets
because they inhibit optimal matches
from being made between employers
and workers across the labor force. The
available evidence indicates increased
enforceability of non-compete clauses
substantially reduces workers’ earnings,
on average, across the labor force
generally and for specific types of
workers.344
In addition to the evidence showing
non-compete clauses reduce earnings
for workers across the labor force, there
is also evidence non-compete clauses
reduce earnings specifically for workers
who are not subject to non-compete
clauses.345 These workers are harmed by
non-compete clauses, because their
wages are depressed, but they do not
necessarily benefit from any incentives
for increased training that non-compete
clauses may provide.
Overall, these harms to workers are
significant. The Commission estimates
that the proposed rule, which would
prohibit employers from using non-
compete clauses, would increase
workers’ total earnings by $250 to $296
billion per year.346
The available evidence also indicates
non-compete clauses negatively affect
competition in product and service
markets. There is evidence non-compete
clauses increase consumer prices and
concentration in the health care
sector.347 There is also evidence non-
compete clauses foreclose the ability of
competitors to access talent by
effectively forcing future employers to
buy out workers from their non-compete
342 See supra Part IV.A.1.c.
343 See, e.g., Fashion Originators’ Guild, 312 U.S.
at 467–68; Atl. Refining Co., 381 U.S. at 371.
344 See supra Part II.B.1.b.
345 See supra Part II.B.1.c.
346 See infra Part VII.B.1.a.
347 See supra Part II.B.2.a.
clauses if they want to hire them.348 The
weight of the evidence also indicates
non-compete clauses have a negative
impact on new business formation and
innovation.349 These harms are
significant. For example, with respect to
consumer prices in the health care
sector alone, the Commission estimates
health spending would decrease by
$148 billion annually due to the
proposed rule.350
In the Commission’s preliminary
view, the asserted benefits from non-
compete clauses do not outweigh these
harms. In short, while there is
considerable evidence non-compete
clauses harm both workers and
consumers, the evidence that non-
compete clauses benefit workers or
consumers is scant.
As described above, the most common
justification for non-compete clauses is
they increase employers’ incentive to
make productive investments in, for
example, trade secrets, customer lists,
worker training, and capital investment.
There is evidence non-compete clauses
increase employee training and capital
investment, as noted above.351 However,
the considerable harms to workers and
consumers are not outweighed because
an employer has some marginally
greater ability to protect trade secrets,
customer lists, and other firm
investments, or because the worker is
receiving increased training, or because
the firm has increased capital
investments. If they were, workers
would have higher earnings when non-
compete clauses are more readily
available to firms (i.e., when legal
enforceability of non-compete clauses
increases) or prices for consumers
would be lower. However, the empirical
economic literature shows workers
generally have lower, not higher,
earnings when non-compete clause
enforceability increases.
Moreover, the Commission is also not
aware of any evidence these potential
benefits of non-compete clauses lead to
reduced prices for consumers. Indeed,
the only empirical study of the effects
of non-compete clauses on consumer
prices—in the health care sector—finds
increased final goods prices as the
enforceability of non-compete clauses
increases.352 Furthermore, the
Commission is not aware of any
evidence non-compete clauses reduce
trade secret misappropriation or the loss
of other types of confidential
information. The Commission’s
348 See supra Part II.B.2.b.
349 See supra Part II.B.2.c–d.
350 See infra Part VII.B.2.c.
351 See supra Part II.B.2.e.
352 See supra Part II.B.2.a.
understanding is there is little reliable
empirical data on trade secret theft and
firm investment in trade secrets in
general, and no reliable data on how
non-compete clauses affect these
practices. The Commission is also not
aware of evidence that, in the three
states in which non-compete clauses are
generally void, the inability to enforce
non-compete clauses has materially
harmed workers or consumers in those
states.
As a result, the Commission
preliminarily finds the asserted benefits
from non-compete clauses do not
outweigh the harms. The Commission
seeks comment on this preliminary
finding.
V. Section-by-Section Analysis
The Commission is proposing to
create a new Subchapter J in Chapter 16
of the Code of Federal Regulations.
Subchapter J would be titled ‘‘Rules
Concerning Unfair Methods of
Competition.’’ Within Subchapter J, the
Commission is proposing to create 16
CFR part 910—the Non-Compete Clause
Rule.353 The Commission describes each
section of the proposed rule below.
Section 910.1 	Definitions
Proposed § 910.1 would contain
definitions of terms that would be used
in the Rule.
1(a) Business Entity
Proposed § 910.1(a) would define the
term business entity. This term would
be used in proposed § 910.3, which
would contain an exception for certain
non-compete clauses. Under the
exception, the Rule would not apply to
a non-compete clause entered into by a
person who is selling a business entity
or otherwise disposing of all of the
person’s ownership interest in the
business entity, or by a person who is
selling all or substantially all of a
business entity’s operating assets, when
the person restricted by the non-
compete clause is a substantial owner
of, or substantial member or substantial
partner in, the business entity at the
time the person enters into the non-
compete clause. The proposed rule
would also use the term business entity
in proposed § 910.1(e), which would
define substantial owner, substantial
member, or substantial partner as an
owner, member, or partner holding at
least a 25% ownership interest in a
business entity.
Proposed § 910.1(a) would define the
term business entity as a partnership,
corporation, association, limited
353 For ease of reference, this Part V refers to
proposed 16 CFR part 910 as ‘‘the Rule.’’

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3509
liability company, or other legal entity,
or a division or subsidiary thereof. The
Commission is proposing to include
divisions and subsidiaries in the
definition because it believes the
exception in proposed § 910.3 should
apply where a person is selling a
division or subsidiary of a business
entity. The primary rationale for the
sale-of-a-business exception in proposed
§ 910.3—that the exception may help to
protect the value of a business acquired
by a buyer—would also apply where a
person is selling a division or subsidiary
of a business entity. Applying the sale-
of-a-business exception where a person
is selling a division or subsidiary of a
business entity would also be consistent
with many state laws that exempt non-
compete clauses from certain
requirements when they are between the
seller and buyer of a business, including
a division or subsidiary of the
business.354
The Commission seeks comment on
proposed § 910.1(a).
1(b) Non-Compete Clause
Proposed § 910.1(b)(1) would define
non-compete clause as a contractual
term between an employer and a worker
that prevents the worker from seeking or
accepting employment with a person or
operating a business after the
conclusion of the worker’s employment
with the employer. The Commission
believes this is a generally accepted
definition of the term non-compete
clause.
Proposed § 910.1(b)(1) would limit the
coverage of the Rule to non-compete
clauses between employers and
workers. The Rule would not apply to
other types of non-compete clauses—for
example, non-compete clauses between
two businesses, where neither is a
worker pursuant to the Rule’s definition
of ‘‘worker.’’ 355 While such non-
compete clauses would not be covered
by the Rule, they would still be subject
to federal antitrust law and all other
applicable law.
Furthermore, pursuant to proposed
§ 910.1(b)(1), the Rule would apply only
to post-employment restraints—i.e.,
restrictions on what the worker may do
after the conclusion of the worker’s
employment with the employer. The
Rule would not apply to concurrent-
employment restraints—i.e., restrictions
on what the worker may do during the
worker’s employment.
Some non-compete clauses do not use
language that expressly prohibits a
354 See, e.g., Cal. Bus. & Prof. Code sec. 16601;
Mass. Gen. Laws Ann. ch. 149, sec. 24L (definition
of ‘‘noncompetition agreement’’); R.I. Gen. Laws
sec. 28–59–2(8)(iii).
355 See proposed § 910.1(f).
worker from competing against their
employer, but instead effect the same
restriction by requiring workers to pay
damages if they compete against their
employer. State courts generally view
these contractual terms as non-compete
clauses.356 These contractual terms
would also be non-compete clauses
under proposed § 910.1(b)(1), because
they prevent a worker from seeking or
accepting work with a person or
operating a business after the
conclusion of the worker’s employment
with the employer (unless the damages
specified in the contract are paid).
Proposed § 910.1(b)(2) would clarify
the definition of non-compete clause in
proposed § 910.1(b)(1) by explaining
that whether a contractual term is a non-
compete clause for purposes of the Rule
would depend on a functional test. In
other words, whether a contractual term
is a non-compete clause would depend
not on what the term is called, but how
the term functions.
In addition to non-compete clauses,
employers and workers enter into many
other types of covenants that restrict
what a worker may do after the worker
leaves their job, including, among
others, NDAs; non-solicitation
agreements; and TRAs.357 The
definition of non-compete clause would
generally not include these types of
covenants, because these covenants
generally do not prevent a worker from
seeking or accepting work with a person
or operating a business after the
conclusion of the worker’s employment
with the employer. These other types of
covenants may affect the way a worker
competes with their former employer
after the worker leaves their job.
However, they do not generally prevent
a worker from competing with their
former employer altogether; and they do
not generally prevent other employers
from competing for that worker’s labor.
For example, if a worker leaves their job
with their employer and goes to work
for a competitor, an NDA the worker
signed with their employer may prevent
the worker from disclosing certain
information to the competitor. However,
a standard NDA would not prevent the
worker from seeking or accepting work
with the competitor.
The Commission is concerned,
however, that some employers may seek
to evade the requirements of the Rule by
implementing restrictive employment
covenants other than non-compete
clauses that restrain such an unusually
356 See, e.g., Wichita Clinic, P.A. v. Louis, 185
P.3d 946, 951 (Kan. Ct. App. 2008); Intermountain
Eye & Laser Ctrs., 127 P.3d 121, 127 (Idaho 2005);
BDO Seidman v. Hirshberg, 712 NE2d 1220, 1222–
23 (N.Y. 1999).
357 See supra Part II.A.
large scope of activity that they are de
facto non-compete clauses. Under
proposed § 910.1(b)(2), such functional
equivalents would be non-compete
clauses for purposes of the Rule,
whether drafted for purposes of evasion
or not.
Courts have taken this approach when
analyzing whether a contractual term is
a non-compete clause under state law.
For example, in Brown v. TGS Mgmt.
Co., LLC, a California state court held an
NDA that defined confidential
information ‘‘so broadly as to prevent
[the plaintiff] from ever working again
in securities trading’’ operated as a de
facto non-compete clause and therefore
could not be enforced under California
law, which generally prohibits
enforcement of non-compete clauses.
The NDA in this case restrained a far
broader scope of activity than a typical
NDA. For example, it defined
‘‘confidential information’’ as any
information that is ‘‘usable in’’ or
‘‘relates to’’ the securities industry. As
a result, the court concluded it
effectively prevented the worker from
working in the securities industry after
his employment ended and was
therefore a de facto non-compete
clause.358 Similarly, in Wegmann v.
London, the U.S. Court of Appeals for
the Fifth Circuit concluded liquidated
damages provisions in a partnership
agreement were de facto non-compete
clauses ‘‘given the prohibitive
magnitudes of liquidated damages they
specify.’’ 359
The purpose of § 910.1(b)(2) is to
clarify that, if an employer implements
a restrictive covenant not called a ‘‘non-
compete clause’’ but so unusually broad
in scope it functions as such, the
covenant would be within the definition
of non-compete clause in proposed
§ 910.1(b)(1). Proposed § 910.1(b)(2)
would state that the term non-compete
clause includes a contractual term that
is a de facto non-compete clause
because it has the effect of prohibiting
the worker from seeking or accepting
work with a person or operating a
business after the conclusion of the
worker’s employment with the
employer.
Proposed § 910.1(b)(2) would also
provide two examples of contractual
terms that may be de facto non-compete
clauses. The first example, based on
Brown v. TGS Mgmt. Co., LLC, would be
a non-disclosure agreement between an
employer and a worker written so
broadly it effectively precludes the
worker from working in the same field
358 57 Cal. App. 5th 303, 306, 316–319 (Cal. Ct.
App. 2020).
359 648 F.2d 1072, 1073 (5th Cir. 1981).

3510 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
after the conclusion of the worker’s
employment with the employer. The
second example, based on Wegmann v.
London, would be a covenant between
an employer and a worker that requires
the worker to pay the employer or a
third-party entity for training costs if the
worker’s employment terminates within
a specified time period, where the
required payment is not reasonably
related to the costs the employer
incurred for training the worker.
The Commission stresses this list of
examples would be a non-exclusive list.
Restrictive employment covenants other
than NDAs and TRAs may also
constitute de facto non-compete clauses,
depending on the facts. In addition,
NDAs and TRAs may constitute de facto
non-compete clauses under factual
scenarios other than the scenarios
outlined in these examples.
The Commission seeks comment on
proposed § 910.1(b)(1) and (2). In
addition, the Commission is concerned
that workplace policies similar to non-
compete clauses—such as a term in an
employee handbook stating workers are
prohibited from working for competitors
after their employment ends—could
potentially have negative effects similar
to non-compete clauses if workers
believe they are binding, even if they do
not impose a contractual obligation.
Therefore, the Commission also seeks
comment on whether non-compete
clause should be defined not only as a
‘‘contractual term’’ between an
employer and a worker, but also as a
provision in a workplace policy.360
1(c) Employer
The Rule would apply only to non-
compete clauses between employers and
workers.361 Proposed § 910.1(c) would
define employer as a person, as defined
in 15 U.S.C. 57b–1(a)(6), that hires or
contracts with a worker to work for the
person. 15 U.S.C. 57b–1(a)(6) defines
person as any natural person,
partnership, corporation, association, or
other legal entity, including any person
acting under color or authority of state
law. Thus, proposed § 910.1(c) would
effectively define employer as any
natural person, partnership,
corporation, association, or other legal
entity, including any person acting
under color or authority of state law,
that hires or contracts with a worker to
work for the person.
A person, as defined in 15 U.S.C.
57b–1(a)(6), that hires or contracts with
a worker to work for the person would
be an employer under proposed
§ 910.1(c) regardless of whether the
360 See, e.g., D.C. Code sec. 32–581.01(15).
361 See proposed § 910.1(b)(1).
person meets another legal definition of
employer, such as a definition in federal
or state labor law.
Some entities that would otherwise be
employers may not be subject to the
Rule to the extent they are exempted
from coverage under the FTC Act. These
entities include certain banks, savings
and loan institutions, federal credit
unions, common carriers, air carriers
and foreign air carriers, and persons
subject to the Packers and Stockyards
Act of 1921,362 as well as an entity that
is not ‘‘organized to carry on business
for its own profit or that of its
members.’’ 363 Where an employer is
exempt from coverage under the FTC
Act, the employer would not be subject
to the Rule.
Furthermore, state and local
government entities—as well as some
private entities—may not be subject to
the Rule when engaging in action
protected by the state action doctrine.
States are subject to the antitrust
laws.364 However, under the state action
doctrine, federal statutes do not limit
the sovereign states’ autonomous
authority over their own officers, agents,
and policies in the absence of clear
congressional intent to do so.365 The key
question is whether the conduct at issue
is ‘‘compelled by direction of the state
acting as a sovereign.’’ 366 The state
action doctrine may also be invoked by
private entities in certain limited
scenarios—specifically, where (1) the
challenged restraint is clearly
articulated as and affirmatively
expressed as state policy, and (2) the
policy is actively supervised by the state
itself.367 Thus, some entities that would
otherwise be employers under proposed
§ 910.1(c) may not be subject to the Rule
when engaging in action protected by
the state action doctrine. Where private
entities are involved, this would likely
require a highly fact-specific inquiry.
The Commission seeks comment on
proposed § 910.1(c).
1(d) Employment
The proposed rule would define the
term non-compete clause as a
contractual term between an employer
and a worker that prevents the worker
from seeking or accepting employment
with a person, or operating a business,
after the conclusion of the worker’s
employment with the employer.
362 15 U.S.C. 45(a)(2).
363 15 U.S.C. 44.
364 Goldfarb v. Va. State Bar, 421 U.S. 773, 791–
92 (1975).
365 Parker v. Brown, 317 U.S. 341, 350–51 (1943)
(construing the Sherman Act).
366 Goldfarb, 421 U.S. at 791.
367 Cal. Retail Liquor Dealers Ass’n v. Midcal
Aluminum, Inc., 445 U.S. 97, 105 (1980).
Proposed § 910.1(d) would define
employment as work for an employer, as
the term employer is defined in
§ 910.1(c). This proposed definition
would clarify that an employment
relationship exists, for purposes of the
Rule, regardless of whether an
employment relationship exists under
another law, such as a federal or state
labor law. The Commission seeks
comment on proposed § 910.1(d).
1(e) Substantial Owner, Substantial
Member, and Substantial Partner
The proposed rule would use the
terms substantial owner, substantial
member, and substantial partner in
proposed § 910.3, which would exempt
certain non-compete clauses from
coverage under the Rule. This exception
would only be available where the party
restricted by the non-compete clause is
a substantial owner of, or substantial
member or substantial partner in, the
business entity. Limiting the exception
to substantial owners, substantial
members, and substantial partners
would ensure the exception is only
available where the seller’s stake in the
business is large enough that a non-
compete clause may be necessary to
protect the value of the business
acquired by the buyer.
Proposed § 910.1(e) would define
substantial owner, substantial member,
and substantial partner as an owner,
member, or partner holding at least a
25% ownership interest in a business
entity. The Commission is proposing a
threshold of 25% ownership interest
because the Commission believes the
exception should be available where, for
example, a few entrepreneurs sharing
ownership interest in a startup sell their
firm. In such a scenario, a non-compete
clause may be necessary to protect the
value of the business acquired by the
buyer. For this reason, a threshold of,
for example, 51% may be too high.
However, the Commission believes
the exception should not be available
where the ownership interest in
question is so small the transfer of
ownership interest would not be
necessary to protect the value of the
business acquired by the buyer. For
example, the exception should not be
available where a worker with a small
amount of company stock sells stock
back to the company as part of a stock
redemption agreement when the
worker’s employment ends. The
Commission believes a 25% threshold
strikes the appropriate balance between
a threshold that may be too high (and
would exclude many scenarios in which
a non-compete clause may be necessary
to protect the value of the business
acquired by the buyer) and a threshold

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3511
that may be too low (and would allow
the exception to apply more broadly
than is needed to protect such an
interest).
Instead of establishing a threshold,
the Rule could simply use the terms
substantial owner, substantial member,
and substantial partner in proposed
§ 910.3 and leave the interpretation of
those terms to case-by-case
adjudication. However, if the Rule does
not define a threshold, sellers of
businesses may be unsure whether or
not they are substantial owners,
substantial members, and substantial
partners under proposed § 910.3.
Defining a threshold would provide
greater clarity to the public and
facilitate compliance with the Rule.
The Commission seeks comment on
proposed § 910.1(e).
1(f) Worker
The Rule would apply only to non-
compete clauses between employers and
workers.368 Proposed § 910.1(f) would
define worker as a natural person who
works, whether paid or unpaid, for an
employer. Proposed § 910.1(f) would
further state the term worker includes,
without limitation, an employee,
individual classified as an independent
contractor, extern, intern, volunteer,
apprentice, or sole proprietor who
provides a service to a client or
customer.
As this definition states, the term
worker would include not only
employees, but also individuals
classified as independent contractors, as
well as other kinds of workers. Under
proposed § 910.1(f), the term worker
would include any natural person who
works, whether paid or unpaid, for an
employer, without regard to whether the
worker is classified as an ‘‘employee’’
under the Fair Labor Standards Act
(FLSA) or any other statute that draws
a distinction between ‘‘employees’’ and
other types of workers. Thus, gig
economy workers such as rideshare
drivers would be considered workers for
purposes of proposed § 910.1(f).
The Commission is concerned that, if
the Rule were to define workers as
‘‘employees’’ according to, for example,
the FLSA definition, employers may
misclassify employees as independent
contractors to evade the Rule’s
requirements. Furthermore, the
Commission has no reason to believe
non-compete clauses that apply to
workers such as independent
contractors or interns negatively affect
competitive conditions to a lesser
degree than non-compete clauses that
apply to employees. Such non-compete
368 See proposed § 910.1(b)(1).
clauses may, in fact, be more harmful to
competition, given that these other
types of workers tend to have shorter
employment relationships. In addition,
the Commission does not believe
employers have stronger business
justifications for applying non-compete
clauses to independent contractors than
they would to employees.
Proposed § 910.1(f) would also state
the term worker does not include a
franchisee in the context of a franchisee-
franchisor relationship. The
Commission believes that, in some
cases, the relationship between a
franchisor and franchisee may be more
analogous to the relationship between
two businesses than the relationship
between an employer and a worker. In
addition, the evidentiary record before
the Commission relates primarily to
non-compete clauses that arise solely
out of employment. The Commission
has surveyed the available evidence
relating to non-compete clauses and is
not aware of research on the effects of
applying additional legal restrictions to
non-compete clauses between
franchisors and franchisees. Therefore,
the Commission believes it would be
appropriate to clarify that a franchisee—
in the context of a franchisor-franchisee
relationship—is not a worker for
purposes of proposed § 910.1(f).
Proposed § 910.1(f) would further
clarify, however, the term worker
includes a natural person who works for
the franchisee or franchisor. In addition,
proposed § 910.1(f) would clarify non-
compete clauses between franchisors
and franchisees would remain subject to
federal antitrust law as well as all other
applicable law. These laws include state
laws that apply to non-compete clauses
in the franchise context. The
Commission is not proposing to find
that non-compete clauses between
franchisors and franchisees are
beneficial to competition.
The Commission seeks comment on
proposed § 910.1(f).
Section 910.2 	Unfair Methods of
Competition
2(a) Unfair Methods of Competition
Proposed § 910.2(a) would state 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; maintain with a worker a non-
compete clause; or represent to a worker
that the worker is subject to a non-
compete clause where the employer has
no good faith basis to believe the worker
is subject to an enforceable non-compete
clause. In effect, proposed § 910.2(a)
would categorically ban employers from
using non-compete clauses, because—as
of the compliance date—employers
would be prohibited from maintaining
pre-existing non-compete clauses and
entering into new non-compete
clauses.369
Part IV above explains the legal basis
for the Commission’s preliminary
determination that the practices listed
in proposed § 910.2(a) are unfair
methods of competition. This section-
by-section analysis for proposed
§ 910.2(a) describes how each of the
three prongs of proposed § 910.2(a)
would function and explains why the
Commission is proposing a categorical
ban on non-compete clauses.
How Proposed § 910.2(a) Would
Function
Proposed § 910.2(a) would prohibit an
employer from entering into or
attempting to enter into a non-compete
clause with a worker and maintaining
with a worker a non-compete clause.
Proposed § 910.2(a) would use both the
term ‘‘enter into’’ and the term
‘‘maintain’’ to make clear it is an unfair
method of competition for an employer
to either (1) enter into or attempt to
enter into new non-compete clauses as
of the Rule’s compliance date or (2)
maintain pre-existing non-compete
clauses as of the compliance date. The
Commission believes non-compete
clauses entered into before the
compliance date implicate the concerns
described above in Part IV to the same
degree as non-compete clauses entered
into as of the compliance date.370 As a
result, the Commission believes it
would be appropriate to require
employers to rescind non-compete
clauses entered into before the
compliance date, as well as to refrain
from entering into or attempting to enter
into new non-compete clauses starting
on the compliance date.
Furthermore, requiring employers to
rescind existing non-compete clauses
would not impose significant
compliance costs, due to the safe harbor
in proposed § 910.2(b)(3). Under this
safe harbor, an employer could comply
with the requirement to rescind existing
non-compete clauses by providing
notice to the affected workers. In
addition, proposed § 910.2(b)(2)(C)
would further reduce compliance costs
by providing language that would
presumptively meet this notice
requirement.
369 However, employers could still use non-
compete clauses where they qualify for the
exception in proposed § 910.3 for non-compete
clauses between the seller and buyer of a business.
370 See supra Part IV (describing the reasons for
the Commission’s preliminary determination that
non-compete clauses between employers and
workers are an unfair method of competition).

3512 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
Proposed § 910.2(a) would prohibit an
employer from attempting to enter into
a non-compete clause with a worker. An
employer attempts to enter a non-
compete clause with a worker where, for
example, the employer provides the
worker with the non-compete clause,
but the worker does not sign it. The
Commission is concerned that
attempting to enter into a non-compete
clause with a worker would have in
terrorem effects because, in this
situation, the worker may still believe
they are subject to a non-compete clause
even if they did not sign it. For example,
the worker may not recall whether they
signed the non-compete clause or may
not realize they are not bound by the
non-compete clause unless they signed
it.
Proposed § 910.2(a) would also
prohibit an employer from representing
to a worker that the worker is covered
by a non-compete clause where the
employer has no good faith basis to
believe the worker is subject to an
enforceable non-compete clause.
Workers often lack knowledge of
whether employers may enforce non-
compete clauses.371 In addition, the
available evidence indicates that, in
states where non-compete clause are
void, workers are subject to non-
compete clauses at approximately the
same rate as workers in other states,
suggesting that employers may believe
workers are unaware of their legal
rights.372 Because many workers lack
knowledge of whether their employer
may enforce a non-compete clause
under state law, they may also be
unaware of any final rule issued by the
Commission prohibiting employers from
entering into or maintaining non-
compete clauses. Employers may seek to
exploit this lack of awareness by
representing to workers that they are
subject to a non-compete clause when
they are not. This would likely have an
in terrorem effect on workers, causing
them to refrain from looking for work or
taking another job, thereby furthering
the adverse effects on competition
motivating this proposed rule. As a
result, the Commission believes it is
appropriate for the Rule to prohibit
employers from representing to workers
that they are covered by a non-compete
clause.
In addition, workers—particularly
low-income workers—may lack
resources to litigate against their
employers. As a result, mere threats to
enforce a non-compete clause may deter
workers from looking for work with a
competitor or starting their own
business, which would result in the
anticompetitive effects described above
in Part IV.A.
Under this ‘‘representation’’ prong of
proposed § 910.2(a), an employer would
be prohibited from, among other things,
threatening to enforce a non-compete
clause against a worker; advising a
worker that, due to a non-compete
clause, they should not pursue a
particular job opportunity; or simply
telling the worker that the worker is
covered by a non-compete clause.
However, under proposed § 910.2(a),
this prohibition on representation
would only apply where the employer
has no good faith basis to believe the
worker is subject to an enforceable non-
compete clause. Proposed § 910.2(a)
includes this ‘‘no good faith basis’’
exception to ensure the representation
prong is consistent with the First
Amendment. The Supreme Court has
held ‘‘there can be no constitutional
objection to the suppression of
commercial messages that do not
accurately inform the public about
lawful activity.’’ 373 Accordingly, ‘‘[t]he
government may ban forms of
communication more likely to deceive
the public than to inform it, or
commercial speech related to illegal
activity.’’ 374 A rule that prohibits an
employer from representing to a worker
that the worker is subject to a non-
compete clause—where the employer
has no good faith basis to believe that
the worker is subject to an enforceable
non-compete clause—would meet this
test because, under such circumstances,
an employer would be making a false
claim and asserting an illegal restraint
on worker activity. An employer would
have no good faith basis to believe that
a worker is subject to an enforceable
non-compete clause where non-compete
clauses are not enforceable in the
relevant state or where the validity of
the Rule—which would prohibit
employers from maintaining or entering
into non-compete clauses—has been
adjudicated and upheld.
Proposed § 910.2(a) would not apply
retroactively. An employer would not
violate proposed § 910.2(a) where—
prior to the compliance date—it entered
into or attempted to enter into a non-
compete clause with a worker;
maintained with a worker a non-
compete clause; or represented to a
worker that the worker is subject to a
non-compete clause. Instead, proposed
§ 910.2(a) would require employers to
refrain from these practices starting on
the compliance date.
Why the Commission Is Proposing a
Categorical Ban on Non-Compete
Clauses
Except for certain non-compete
clauses between the seller and buyer of
a business,375 the proposed rule would
categorically ban employers from using
non-compete clauses with workers. The
proposed rule would prohibit an
employer from using a non-compete
clause with any of its workers, without
regard to the worker’s earnings or job
function.
The Commission is proposing a
categorical ban on non-compete clauses
because, fundamentally, non-compete
clauses obstruct labor market
competition through a similar
mechanism for all workers. Non-
compete clauses block workers in a
labor market from switching to jobs in
which they would be better paid and
more productive. This harms workers
who are subject to non-compete clauses.
This also harms other workers in the
labor market, since jobs that may be
better matches for those workers are
filled by workers who are unable to
leave their jobs due to non-compete
clauses.376 And this harms other firms
and potential entrants into the market,
who have a more limited pool of
workers from which to hire. Regardless
of a worker’s income or job status, non-
compete clauses block workers from
switching to jobs in which they would
be better paid and more productive—
restricting the opportunities of all
workers in that labor market.
The available data do not allow the
Commission to estimate earnings effects
for every occupation. However, the
evidentiary record indicates non-
compete clauses depress wages for a
wide range of subgroups of workers
across the spectrum of income and job
function—from hourly workers to
highly paid, highly skilled workers such
as executives. The Commission
therefore estimates the proposed rule
would increase earnings for workers in
all of the subgroups of the labor force for
which sufficient data is available.377
Excluding these workers from the
proposed rule would deny these
workers the benefits of higher earnings
through increased competition in the
market for their labor.
The Commission recognizes there are
compelling reasons for banning non-
compete clauses that apply more
strongly to lower-wage workers. Non-
371 See Prescott & Starr, supra note 57 at 10–11. 	373 Cent. Hudson Gas & Elec. v. Pub. Serv. 	375 See proposed § 910.3.
372 See Starr, Prescott, & Bishara, supra note 42 	Comm’n of N.Y., 447 U.S. 557, 563 (1980). 	376 See supra Part II.B.1.
at 81. 	374 Id. at 563–64. 	377 See infra Part VII.B.1.a.

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3513
compete clauses for lower-wage
workers—such as sandwich shop
workers, warehouse workers, or security
guards 378—may be more likely than
non-compete clauses for higher-wage
workers to be exploitative and coercive
at the time of contracting and at the time
of the worker’s potential departure from
the employer.379 In addition, the most
commonly cited justifications for non-
compete clauses appear particularly
weak when applied to relatively lower-
wage workers, to the extent such
workers are less likely to have access to
trade secrets or confidential
information.380
The Commission believes there are
also compelling reasons for banning
non-compete clauses that apply more
strongly to highly paid or highly skilled
workers such as senior executives. As
described above, the weight of the
available evidence indicates non-
compete clauses negatively affect new
business formation, innovation, and the
ability of competitors to hire skilled
workers.381 Non-compete clauses for
highly paid or highly skilled workers
such as senior executives may be
contributing more to these harms than
non-compete clauses for some other
workers, to the extent such workers may
be likely to start competing businesses,
be hired by potential entrants or
competitors, or develop innovative
products and services. Non-compete
clauses for highly paid or highly skilled
workers such as senior executives may
also block potential entrants, or raise
their costs, to a high degree, because
such workers are likely to be in high
demand by potential entrants. As a
result, prohibiting non-compete clauses
for highly paid or highly skilled workers
such as senior executives may have
relatively greater benefits for consumers
than prohibiting non-compete clauses
for other workers.
For these reasons, the Commission
preliminarily believes a categorical ban
on non-compete clauses would best
achieve the objective of the proposed
rule, which is to remedy the adverse
effects of non-compete clauses on
competition in labor markets and
product and service markets. However,
the Commission also believes several
alternatives to a categorical ban may
also accomplish the objectives of the
proposed rule to some degree, including
different standards for senior
378 See supra Part II.A (listing illustrative
examples of non-compete clauses).
379 See infra Part IV.A.1.b–c.
380 See supra Part IV.B (describing the most
commonly cited justifications for non-compete
clauses).
381 See supra Part II.B.2.b–d.
executives. These alternatives are
described in detail in Part VI.
The Commission seeks comment on
proposed § 910.2(a).
2(b) Existing Non-Compete Clauses
Proposed § 910.2(b) would clarify
employers’ obligations, and impose
additional requirements, related to non-
compete clauses entered into by the
employer prior to the compliance date
(‘‘existing non-compete clauses’’).
2(b)(1) Rescission Requirement
Proposed § 910.2(b)(1) would state
that, to comply with proposed
§ 910.2(a)—which states it is an unfair
method of competition for an employer
to maintain with a worker a non-
compete clause—an employer that
entered into a non-compete clause with
a worker prior to the compliance date
must rescind the non-compete clause no
later than the compliance date. The
reasons why the Commission is
proposing this rescission requirement
are described above in the section-by-
section analysis for proposed § 910.2(a).
The requirements in § 910.2(b)(1)–(3)
do not apply where a worker’s
obligation not to compete elapsed prior
to the compliance date. This is because
the requirements in § 910.2(b)(1)–(3)
derive from § 910.2(a), which
establishes it is an unfair method of
competition to maintain with a worker
a non-compete clause. An employer
does not maintain with a worker a non-
compete clause, in violation of the Rule,
where the obligation not to compete
elapsed prior to the compliance date.
For example, if a worker left their job in
2019 and was subject to a two-year
obligation not to compete, that
obligation would have elapsed in 2021,
and the employer would not violate the
Rule by failing to rescind the non-
compete clause.
The Commission seeks comment on
proposed § 910.2(b)(1).
2(b)(2) Notice Requirement
Proposed § 910.2(b)(2) would require
that the employer provide notice to a
worker that the worker’s non-compete
clause has been rescinded. Proposed
§ 910.2(b)(2) would have three
subparagraphs that would impose
various requirements related to the
notice.
First, proposed § 910.2(b)(2)(A) would
state that an employer that rescinds a
non-compete clause pursuant to
§ 910.2(b)(1) must provide notice to the
worker that the worker’s non-compete
clause is no longer in effect and may not
be enforced against the worker.
Proposed § 910.2(b)(2)(A) would contain
a notice requirement because the
Commission believes the available
evidence indicates that many workers
are not aware of the applicable law
governing non-compete clauses or their
rights under those laws.382 As a result,
if the Commission were to issue a final
Non-Compete Clause Rule, many
workers who had entered into non-
compete clauses may be unaware that,
due to the Rule, their employer is no
longer permitted to maintain the non-
compete clause. As a result, these
workers may continue to refrain from
leaving their job to work for a
competitor or start their own business.
This would negatively affect
competitive conditions in the same
manner the Commission is concerned
about.383 A notice requirement would
help address this concern by ensuring
workers are informed that their non-
compete clause is no longer in effect
and may not be enforced against them.
Proposed § 910.2(b)(2)(A) would state
further that the employer must provide
the notice to the worker in an
individualized communication. As
such, an employer could not satisfy the
notice requirement by, for example,
posting a notice at the employer’s
workplace that workers’ non-compete
clauses are no longer in effect. Proposed
§ 910.2(b)(2)(A) would also state that the
employer must provide the notice on
paper or in a digital format such as, for
example, an email or text message. As
such, a notice communicated orally
would not meet the notice requirement.
Allowing employers to provide the
notice in a digital format would also
reduce compliance costs for employers.
Proposed § 910.2(b)(2)(A) would also
require the employer to provide the
notice to the worker within 45 days of
rescinding the non-compete clause.
Second, proposed § 910.2(b)(2)(B)
would state that the employer must
provide the notice to a worker who
currently works for the employer. The
Commission believes that most
employers have contact information
available for their current workers and
can use this contact information to
provide the notice.
Proposed § 910.2(b)(2)(B) would also
state that the employer must provide the
notice to a worker who formerly worked
for the employer, provided that the
employer has the worker’s contact
information readily available. Providing
the notice to former workers may be
even more vital than providing the
notice to current workers because
former workers may be refraining
actively from competitive activity
because they believe they are subject to
382 See Prescott & Starr, supra note 57 at 10–11.
383 See supra Part IV.A.1.a.

3514 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
a non-compete clause. However,
employers may not have contact
information readily available for all
former workers. Proposed
§ 910.2(b)(2)(B) would therefore require
employers to provide the notice to
former workers only where the
employer has the worker’s contact
information readily available. The
Commission believes that this
requirement would strike the
appropriate balance between providing
notice to affected workers and
minimizing compliance costs for
employers.
Third, proposed § 910.2(b)(2)(C)
would provide model language that
would satisfy the requirement in
proposed § 910.2(b)(2)(A) that the
employer ‘‘provide notice to the worker
that the worker’s non-compete clause is
no longer in effect and may not be
enforced against the worker.’’ The
model language is designed to
communicate the relevant information
in a simple and straightforward manner.
Proposed § 910.2(b)(2)(C) would also
clarify that an employer may also use
language that is different from the
model language, provided that the
language communicates to the worker
that the worker’s non-compete clause is
no longer in effect and may not be
enforced against the worker. Proposed
§ 910.2(b)(2)(C) would reduce
compliance costs and increase
compliance certainty for employers by
providing employers with model
language they could use, while
simultaneously providing employers
with the flexibility to use other language
that would communicate the required
information.
The Commission seeks comment on
proposed § 910.2(b)(2)(A)–(C).
2(b)(3) Safe Harbor
Proposed § 910.2(b)(3) would contain
a safe harbor for compliance with the
rescission requirement in proposed
§ 910.2(b)(1). Proposed § 910.2(b)(3)
would state that an employer complies
with the rescission requirement
described in § 910.2(b)(1) where it
provides notice to a worker pursuant to
§ 910.2(b)(2). Consequently, to comply
with the rescission requirement for
purposes of the Rule, an employer could
simply send a notice to a worker that is
compliant with proposed § 910.2(b)(2).
An employer that does so would not
need to take any other steps to comply
with the rescission requirement in
proposed § 910.2(b)(1). The Commission
believes that this safe harbor would
strike an appropriate balance between
ensuring that workers receive adequate
notice of their rights under the Non-
Compete Clause Rule and minimizing
compliance costs for employers.
The Commission seeks comment on
proposed § 910.2(b)(3).
Section 910.3 	Exception
Proposed § 910.3 would exempt
certain non-compete clauses between
the seller and buyer of a business from
coverage under the Rule. Proposed
§ 910.3 would state that the
requirements of the Rule shall not apply
to a non-compete clause that is entered
into by a person who is selling a
business entity or otherwise disposing
of all of the person’s ownership interest
in the business entity, or by a person
who is selling all or substantially all of
a business entity’s operating assets,
when the person restricted by the non-
compete clause is a substantial owner
of, or substantial member or substantial
partner in, the business entity at the
time the person enters into the non-
compete clause. Proposed § 910.3 would
also clarify that non-compete clauses
covered by this exception would remain
subject to federal antitrust law as well
as all other applicable law.
The exception in proposed § 910.3
would apply only in a narrow set of
circumstances. The Rule, as a whole,
would only apply to non-compete
clauses between employers and
workers.384 As a result, the exception in
proposed § 910.3 would apply only
where the party restricted by the non-
compete clause is a worker (for
example, where the seller of a business
is going to work for the acquiring
business). Where the person restricted
by the non-compete clause is not a
worker, the Rule would not apply as an
initial matter.
The Commission is proposing the
exception in § 910.3 because non-
compete clauses between the seller and
buyer of a business may be unique in
certain respects from non-compete
clauses arising solely out of
employment. Specifically, non-compete
clauses between the seller and buyer of
a business may be distinct from non-
compete clauses that arise solely out of
employment because they may help
protect the value of the business
acquired by the buyer.
This view is consistent with the law
of the majority of the states, under
which non-compete clauses between the
seller and buyer of a business are treated
differently from non-compete clauses
arising solely out of employment. For
example, while non-compete clauses are
generally void in California, North
Dakota, and Oklahoma, each of these
three states exempts non-compete
384 See proposed § 910.1(b).
clauses between the seller and buyer of
a business from this general rule.385 In
the majority of the 47 states that enforce
non-compete clauses under some
circumstances, non-compete clauses
between sellers and buyers of
businesses are reviewed under a more
lenient standard than non-compete
clauses that arise solely out of
employment.386 A frequently cited
reason for this difference in treatment is
that such non-compete clauses
implicate an additional interest relative
to non-compete clauses that arise solely
out of employment: they protect the
value of the business acquired by the
buyer.387 If non-compete clauses
between the seller and buyer of a
business help protect the value of the
business acquired by the buyer,
restricting these types of non-compete
clauses could potentially affect business
acquisitions, including the incentives of
various market actors to start, sell, or
buy businesses.
The Commission further notes that
the evidentiary record described above
in Part II.B relates primarily to non-
compete clauses that arise solely out of
employment. Unlike non-compete
clauses that arise solely out of
employment, there has been little
empirical research on the prevalence of
non-compete clauses between the seller
and buyer of a business. The
Commission is also not aware of
empirical research on the economic
effects of applying additional legal
restrictions to these types of non-
compete clauses. In part, this is because
all states permit non-compete clauses
between buyers and sellers of
businesses to some degree, and because
the laws that apply to these types of
non-compete clauses have seen fewer
changes recently than the laws that
apply to non-compete clauses that arise
solely out of employment. As a result,
there have been few natural experiments
that allow researchers to assess how
restricting these types of non-compete
clauses may affect competition,
including any effects on business
acquisitions.
For these reasons, the Commission
believes it may be appropriate to exempt
non-compete clauses between the seller
385 Cal. Bus. & Prof. Code sec. 16601; N.D. Cent.
Code sec. 9–08–06(1); Okla. Stat. Ann. tit. 15, secs.
218 (sale of a business) and 219 (dissolution of a
partnership).
386 See, e.g., Fla. Stat. Ann. sec. 542.335(1)(d);
Hess Newmark Owens Wolf, Inc. v. Owens, 415 F.3d
630, 634 (7th Cir. 2005); Jiffy Lube Int’l, Inc. v.
Weiss Bros., Inc., 834 F. Supp. 683, 691 (D.N.J.
1993).
387 See, e.g., Strategix, Ltd. v. Infocrossing West,
Inc., 142 Cal. App. 4th 1068, 1072–73 (Cal. Ct. App.
4th 2006); Reed Mill & Lumber Co., 165 P.3d at 736;
Bybee, 178 P.3d at 622.

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3515
and buyer of a business from coverage
under the Rule. Proposed § 910.3 would
clarify, however, that these non-
compete clauses would remain subject
to federal antitrust law and all other
applicable law, including state law
requiring non-compete clauses to be
tailored to protect a legitimate business
interest and to be limited in duration,
geographic area, and the scope of
activity prohibited.
Exempting non-compete clauses
between the seller and buyer of a
business from coverage under the Rule
would not represent a finding that such
non-compete clauses are beneficial to
competition. It would simply reflect the
Commission’s view that it would be
appropriate to tailor the Rule to non-
compete clauses that arise solely out of
employment—given that non-compete
clauses between the seller and buyer of
a business may implicate unique
interests and have unique effects, and
that the evidentiary record does not
permit the Commission to assess these
potential effects as thoroughly as the
potential effects of restricting non-
compete clauses that arise solely out of
employment.
The exception in proposed § 910.3
would only apply where the seller of the
business is a substantial owner of, or
substantial member or substantial
partner in, the business at the time the
person enters into the non-compete
clause. Proposed § 910.1(e) would
define substantial owner, substantial
member, or substantial partner as an
owner, member, or partner holding at
least a 25% ownership interest in a
business entity. The exception would
therefore not allow non-compete clauses
to be applied to a business’s workers in
connection with the sale of a business,
where those workers are not substantial
owners, members, or partners. The
reasons for this proposed 25% threshold
are described above in the section-by-
section analysis for proposed § 910.1(e).
The Commission seeks comment on
proposed § 910.3.
Section 910.4 	Relation to State Laws
The Supremacy Clause of the U.S.
Constitution provides that the
Constitution, and the laws of the United
States made pursuant to the
Constitution, ‘‘shall be the supreme Law
of the Land.’’ 388 Hence, federal law
preempts any state law that conflicts
with the exercise of federal power.389
388 U.S. Const. art. VI, cl. 2.
389 Fid. Fed. Sav. & Loan Ass’n v. de la Cuesta,
458 U.S. 141, 153 (1982) (citing roots in the
Supremacy Clause); McCulloch v. Md., U.S.
Supreme Court, 4 Wheat 159 (1819) (citing the
Supremacy Clause and the Necessary and Proper
Clause (Article I, Section 8, clause 18)).
Such conflict preemption occurs either
‘‘where it is impossible for a private
party to comply with both state and
federal law’’ or where state law ‘‘stands
as an obstacle to the accomplishment
and execution of the full purposes and
objectives of Congress.’’ 390
Congressional intent to preempt state
law can be expressed in the statutory
language itself (express preemption) or
implied in the structure and purpose of
federal law (implied preemption).391
Federal regulations ‘‘have no less pre-
emptive effect than federal statutes,’’ 392
and agencies themselves, implementing
federal statutes, can expressly preempt
conflicting state laws and regulations.393
In some instances, a federal law may
fully preempt contrary state laws. In
others, federal law may impliedly or
expressly respect the continuing and
concurrent exercise of state power, thus
setting a regulatory ‘‘floor’’ but not a
‘‘ceiling.’’ 394 The Commission notes
that ‘‘Congress intended the federal
antitrust laws to supplement, not
displace, state antitrust remedies.’’ 395
The proposed rule would contain an
express preemption provision. Proposed
§ 910.4 would provide that the Rule
shall supersede any state statute,
regulation, order, or interpretation to the
extent that such statute, regulation,
order, or interpretation is inconsistent
with the Rule.396 Proposed § 910.4
would further provide that a state
statute, regulation, order, or
interpretation is not inconsistent with
the provisions of the Rule if the
protection such statute, regulation,
order, or interpretation affords any
worker is greater than the protection
provided under the Rule.
This preemption provision would
reflect the Commission’s intent that the
Non-Compete Clause Rule establish a
regulatory floor, not a ceiling. Under the
proposed preemption provision, state
laws that are inconsistent with the Rule
would be preempted. One example
would be a state law providing that an
employer may enforce a non-compete
clause against a worker where the non-
compete clause is tailored to a
legitimate business interest and
390 Crosby v. Nat’l Foreign Trade Council, 530
U.S. 363, 372–73 (2000).
391 Cipollone v. Liggett Grp., Inc., 505 U.S. 504,
516 (1992); Jones v. Rath Packing Co., 430 U.S. 519,
525 (1977).
392 Fid. Fed. Sav. & Loan Ass’n, 458 U.S. at 153.
393 Id.; see also U.S. v. Shimer, 367 U.S. 374, 383
(1961).
394 See, e.g., Oneok, Inc. v. Learjet, Inc., 575 U.S.
373, 384–85 (2015).
395 Cal. v. ARC Am. Corp., 490 U.S. 93, 102
(1989).
396 In this Part V, we refer to state statutes,
regulations, orders, or interpretations as ‘‘state
laws’’ for ease of reference.
reasonably limited in duration,
geographic area, and scope of activity
prohibited. Such a law would be
inconsistent with proposed § 910.2(a),
which would state that it is an unfair
method of competition—and therefore a
violation of Section 5 of the FTC Act—
for an employer to enter into, attempt to
enter into, or maintain a non-compete
clause with a worker. Under proposed
§ 910.4, proposed § 910.2(a) would
preempt the contrary state law to the
extent that it conflicts with proposed
§ 910.2(a).
However, under the second sentence
of proposed § 910.4, a state law would
not conflict with the provisions of the
Rule if the state law afforded greater
protection to the worker than the
protection provided under the Rule. For
example, as noted above, proposed
§ 910.3 would exempt certain non-
compete clauses between the seller and
buyer of a business from coverage under
the Rule. If a state were to prohibit
employers from entering into,
attempting to enter into, or maintaining
all non-compete clauses—including
non-compete clauses between the seller
and buyer of a business—an employer
could comply with both the state law
and the Rule by not entering into,
attempting to enter into, or maintaining
non-compete clauses between the seller
and buyer of a business.
The Commission seeks comment on
proposed § 910.4.
Section 910.5 	Compliance Date
The proposed rule would establish a
separate effective date and compliance
date. Under proposed § 910.5, the
proposed rule’s effective date would be
the date that is 60 days after the final
rule is published in the Federal
Register. The proposed rule’s
compliance date would be the date that
is 180 days after the final rule is
published in the Federal Register. In
this NPRM, the Commission refers to
the 180-day period between the
publication of the final rule and the
compliance date as the ‘‘compliance
period.’’
Compliance With § 910.2(a). The
Commission expects that employers
would need to undertake the following
two types of tasks during the
compliance period to be prepared to
comply with § 910.2(a) starting on the
compliance date. First, starting on the
compliance date, employers would be
prohibited from maintaining existing
non-compete clauses (i.e., non-compete
clauses that the employer entered into
with a worker prior to the compliance

3516 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
date).397 As a result, during the
compliance period, an employer would
need to assess whether to implement
replacements for existing non-compete
clauses, such as NDAs; draft those
covenants; and then negotiate and enter
into those covenants with the relevant
workers. Second, an employer would be
prohibited from entering into new non-
compete clauses starting on the
compliance date.398 As a result, during
the compliance period, employers
would need to, for example, remove any
non-compete clauses from employment
contracts that they provide to new
workers. The Commission believes that
180 days—or approximately six
months—would be enough time for
employers to accomplish each of these
two tasks.
Compliance With § 910.2(b)(1)–(3). To
comply with § 910.2(b)(1)–(3) starting
on the compliance date, an employer
would be required to rescind, no later
than the compliance date, any non-
compete clauses that it entered into
prior to the compliance date.399 Where
an employer rescinds a non-compete
clause, the employer would be required
to provide notice to the worker that the
worker’s non-compete clause is no
longer in effect and may not be enforced
against the worker.400 This notice may
be provided in a digital format, such as
an email or text message.401 The Rule
would require the employer to provide
the notice to the worker within 45 days
of rescinding the non-compete
clause.402 Employers would be required
to provide the notice to current workers,
as well as former workers where the
employer has the former worker’s
contact information readily available.403
To reduce compliance costs, the Rule
would provide model language that
employers may use for the notice.404
However, employers would have the
flexibility to use language other than the
model language, provided that it
communicates to the worker that the
worker’s non-compete clause is no
longer in effect and may not be enforced
against the worker.405 The Rule would
also provide a safe harbor that would
allow an employer to comply with the
Rule’s rescission requirement by
providing a compliant notice.406 The
Commission believes that this would
significantly reduce compliance costs.
397 See proposed § 910.2(a).
398 Id.
399 See proposed § 910.2(b)(1).
400 See proposed § 910.2(b)(2)(A)–(C).
401 See proposed § 910.2(b)(2)(A).
402 Id.
403 Id.
404 See proposed § 910.2(b)(2)(C).
405 Id.
406 See proposed § 910.2(b)(3).
The Commission believes that the 180-
day compliance period would provide
employers with sufficient time to
prepare to rescind existing non-compete
clauses no later than the compliance
date.
The Commission is proposing an
effective date of 60 days after
publication of the final rule in the
Federal Register because it expects that
the final rule would likely be a major
rule under the Congressional Review
Act (CRA). Under the CRA, a ‘‘major
rule’’ may not take effect fewer than 60
days after the rule is published in the
Federal Register.407 The CRA further
states that a rule is a ‘‘major rule’’ if it
has an annual effect on the economy of
$100 million or more.408 The
Commission believes that the impacts of
the proposed rule, if finalized, would be
large enough that the final rule would
be a major rule under the CRA.409
The Commission seeks comment on
proposed § 910.5.
VI. Alternatives to the Proposed Rule
In this Part VI, the Commission
describes alternatives to the proposed
rule.410 This Part VI addresses the
alternatives related to the rule’s
fundamental design. These alternatives
flow from two key questions: (1)
whether the rule should impose a
categorical ban on non-compete clauses
or a rebuttable presumption of
unlawfulness, and (2) whether the rule
should apply uniformly to all workers
or whether there should be exemptions
or different standards for different
categories of workers. The different
permutations of the answers to each of
these questions yield the different
alternatives for the rule’s fundamental
design.
This Part VI does not generally
address alternatives related to the
design of specific regulatory provisions.
For example, proposed § 910.1(e)
defines a substantial owner, substantial
member, or substantial partner as an
owner, member, or partner holding at
least a 25% ownership interest in a
business entity. In a final rule, the
Commission could set this standard at a
407 5 U.S.C. 801(a)(3)(A).
408 5 U.S.C. 804(2).
409 See infra Part VII (analyzing the costs and
benefits of the proposed rule).
410 The Commission intends for this Part VI to
satisfy the requirements in Section 22 of the FTC
Act that, in an NPRM, the Commission issue a
preliminary regulatory analysis that shall contain ‘‘a
description of any reasonable alternatives to the
proposed rule which may accomplish the stated
objective of the rule in a manner consistent with
applicable law’’ and ‘‘a preliminary analysis of the
effectiveness of the proposed rule and each
alternative in meeting the stated objectives of the
proposed rule.’’ 15 U.S.C. 57b–3(b)(1)(B)–(C).
different percentage level—for example,
50% or 10%. The Commission seeks
comment on these types of granular
questions not in this Part VI, but in the
section-by-section analysis for the
relevant provision in Part V above.
A. Two Key Dimensions of Alternatives
In Part IV above, the Commission
preliminarily finds that the use of non-
compete clauses by employers is an
‘‘unfair’’ method of competition under
Section 5. For workers who are not
senior executives, the Commission
preliminarily finds that non-compete
clauses are ‘‘unfair’’ under Section 5 in
three independent ways. First, the use
by employers of non-compete clauses is
restrictive conduct that negatively
affects competitive conditions. Second,
non-compete clauses are exploitative
and coercive at the time of contracting
while burdening a not insignificant
volume of commerce. Third, non-
compete clauses are exploitative and
coercive at the time of the worker’s
potential departure from the employer
while burdening a not insignificant
volume of commerce.411
For workers who are senior
executives, the Commission
preliminarily finds that the use by
employers of non-compete clauses is
‘‘unfair’’ under Section 5 because such
non-compete clauses are restrictive
conduct that negatively affects
competitive conditions. Indeed, as
described above in Part IV.A.1.a.ii, the
Commission preliminarily believes that
non-compete clauses for senior
executives may harm competition in
product markets in unique ways. (The
second and third preliminary findings
described above—that non-compete
clauses are exploitative and coercive at
the time of contracting and at the time
of a worker’s potential departure—do
not apply to senior executives.) In Part
IV, the Commission seeks comment on
whether this different unfairness
analysis should also apply to highly
paid or highly skilled workers who are
not senior executives.
The objective of the proposed rule is
to remedy these adverse effects from the
use of non-compete clauses. The
proposed rule would seek to accomplish
this objective by prohibiting an
employer from entering into or
attempting to enter into a non-compete
clause with a worker; maintaining with
a worker a non-compete clause; and,
under certain circumstances,
411 See supra Part IV.A.1. The Commission also
preliminarily finds that non-compete clauses are a
‘‘method of competition.’’ See supra Part IV.A.2.

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3517
representing to a worker that the worker
is subject to a non-compete clause.412
The proposed rule would ban non-
compete clauses categorically, with a
limited exception for certain non-
compete clauses between the seller and
buyer of a business.413 In Part V, the
Commission explains why it is
proposing a categorical ban on non-
compete clauses.414
There are two key dimensions of
alternatives related to the rule’s
fundamental design. First, instead of a
categorical ban, the Commission could
adopt a rebuttable presumption of
unlawfulness. Under this approach, it
would be presumptively unlawful for an
employer to use a non-compete clause,
but the use of a non-compete clause
would be permitted if the employer
could meet a certain evidentiary burden,
based on a standard that would be
articulated in the rule. Second, instead
of applying to all workers uniformly, the
Rule could include exemptions or
different standards for different
categories of workers. These exemptions
or different standards could be based on
a worker’s job functions, earnings,
another factor, or some combination of
factors.
1. Categorical Ban vs. Rebuttable
Presumption
The Commission could adopt a
rebuttable presumption of unlawfulness
instead of a categorical ban. Under this
approach, it would be presumptively
unlawful for an employer to use a non-
compete clause. However, the use of a
non-compete clause would be permitted
if the employer could meet a certain
evidentiary burden, based on a standard
that would be articulated in the rule.
The rationale behind this approach
would be that prohibiting employers
from using non-compete clauses is an
appropriate default rule in light of the
adverse effects on competition from
their use in the aggregate; however,
there may be specific sets of facts under
which their use may be justified, so it
would be appropriate to permit
employers to use them in those cases.
Conceptually, the rebuttable
presumption approach would be similar
to ‘‘quick look’’ analysis under antitrust
412 See proposed § 910.2(a). For ease of reference,
this Part VI employs the term ‘‘use of non-compete
clauses’’ to refer to the specific conduct that the
proposed rule would prohibit.
413 See proposed § 910.3. As described in Part V
(in the section-by-section analysis for proposed
§ 910.1(c)), the proposed rule would also not apply
to employers to the extent they are exempt under
Section 5(a)(2) of the FTC Act, and the proposed
rule may not apply under certain circumstances due
to the state action doctrine.
414 See supra Part V, in the section-by-section
analysis for proposed § 910.2(a).
law. In antitrust cases, most restraints
are analyzed under the rule of reason,
which entails an intensive, fact-specific
assessment of market power and market
structure to determine a restraint’s
actual effect on competition.415
However, where ‘‘the great likelihood of
anticompetitive effects can be easily
ascertained,’’ a court may also adopt a
truncated, or ‘‘quick look,’’ rule of
reason analysis.416 Courts apply quick
look analysis where, ‘‘based upon
economic learning and the experience of
the market, it is obvious that a restraint
of trade likely impairs competition.’’ 417
In such cases, ‘‘the restraint is presumed
unlawful and, in order to avoid liability,
the defendant must either identify some
reason the restraint is unlikely to harm
consumers or identify some competitive
benefit that plausibly offsets the
apparent or anticipated harm.’’ 418 A
rebuttable presumption in the Rule
would mirror this approach. Non-
compete clauses would be presumed
unlawful, based on the ‘‘economic
learning and experience of the market’’
summarized in Part IV above, but the
use of a non-compete clause would be
permitted if the employer could make a
showing that satisfies a certain standard.
The rebuttable presumption approach
would also be similar in many respects
to the current common law governing
non-compete clauses. In most states,
non-compete clauses are disfavored, but
are permitted if an employer can
identify a legitimate business interest
and if the non-compete clause is
reasonable with respect to geographic
area, duration, and the scope of activity
prohibited.419 Similarly, under the
rebuttable presumption approach, non-
compete clauses would be
presumptively unlawful but would be
permitted under certain circumstances.
One important question related to the
rebuttable presumption approach is
what the test for rebutting the
presumption should be. The
Commission preliminarily believes that,
if it were to adopt a rebuttable
presumption in a final rule, it would
adopt a test that is more restrictive than
the current common-law standard.
Otherwise, the Rule would be no more
restrictive than current law, and the
objective of the Rule—to remedy the
adverse effects to competition from
employers’ use of non-compete clause—
would not be achieved.
415 See, e.g., Am. Express Co., 138 S. Ct. at 2284.
416 See, e.g., Calif. Dental Ass’n v. Fed. Trade
Comm’n, 526 U.S. 756, 770 (1999).
417 Polygram Holding, Inc. v. Fed. Trade Comm’n,
416 F.3d 29, 36 (D.C. Cir. 2005).
418 Id.
419 See supra Part II.C.1.
One option would be a test derived
from the quick look test. For example,
the rule could allow an employer to
rebut the presumption where the
employer ‘‘shows by clear and
convincing evidence that the non-
compete clause is unlikely to harm
competition in labor markets or product
or service markets, or identifies some
competitive benefit that plausibly
outweighs the apparent or anticipated
harm.’’ Alternatively, the test could
focus exclusively on either of these two
prongs: unlikeliness of harm to
competition, or presence of a
competitive benefit that plausibly
outweighs the apparent or anticipated
harm to competition. A term other than
‘‘clear and convincing evidence,’’ such
as ‘‘preponderance of the evidence,’’
could also be used.
Another option would be a test that
piggybacks on state law. For example,
the rule could allow an employer to
rebut the presumption where the
employer ‘‘shows by clear and
convincing evidence that a non-compete
clause is necessary to protect a
legitimate business interest.’’ This
would be a higher standard than the
current common law test because it
would require an employer to show not
only that it has a ‘‘legitimate business
interest’’ under state law, but that it
cannot protect this interest in another
way—for example, through the use of an
NDA. The test could also use the term
‘‘reasonably necessary’’ instead of
‘‘necessary,’’ or a term other than ‘‘clear
and convincing evidence, such as
‘‘preponderance of the evidence.’’ The
Commission could also establish what
‘‘legitimate business interests’’ could
justify a non-compete clause and which
could not.
The Commission preliminarily
believes the categorical ban in the
proposed rule would advance the
proposed rule’s objectives to a greater
degree than the rebuttable presumption
approach. The Commission is
concerned that the rebuttable
presumption approach could foster
confusion among employers and
workers because the question of
whether an employer may use a non-
compete clause would depend on an
abstract legal test rather than a bright-
line rule. Under a categorical ban, it
would be clear non-compete clauses are
prohibited. In contrast, under the
rebuttable presumption approach, it
may be difficult for both employers and
workers to know whether a particular
non-compete clause meets the abstract
legal test articulated in the rule. For
example, it may be difficult for an
employer or worker to know whether a
particular non-compete clause is

3518 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
‘‘unlikely to harm competition in labor
markets or product or service markets,’’
whether ‘‘there is some competitive
benefit that plausibly outweighs the
apparent or anticipated harm,’’ or
whether a non-compete clause is
‘‘necessary’’ to protect a legitimate
business interest. Furthermore, because
only the Commission can enforce a rule
issued under Section 6(g), the
development of the law—and therefore
clarity for employers—would be slow in
coming.
However, the rebuttable presumption
could also have some advantages over a
categorical ban. If there were to be
specific factual scenarios, unanticipated
by the Commission, in which a
particular non-compete clause did not
implicate the anticompetitive concerns
the Commission is concerned about, the
rebuttable presumption would allow the
clause to be used.
The Commission seeks comment on
whether it should adopt a rebuttable
presumption instead of a categorical ban
and what the test for rebutting the
presumption should be.
2. Uniform Rule vs. Differentiation
In addition to establishing a
categorical ban on non-compete clauses,
the proposed rule would apply
uniformly to all workers. Employers
covered by the rule—i.e., employers
other than those exempt from coverage
under the FTC Act 420—would be
prohibited from using a non-compete
clause with a worker, except in limited
scenarios where the non-compete clause
is between the seller and buyer of a
business.421
Rather than applying a rule uniformly
to all workers, the Commission could
apply different rules to different
categories of workers based on a
worker’s job function, occupation,
earnings, another factor, or some
combination of factors. For example, the
rule could ban non-compete clauses for
workers generally, but could apply a
rebuttable presumption to non-compete
clauses for workers whose earnings are
above a certain threshold (or could
exempt such workers altogether).
This Part VI uses the term ‘‘more-
lenient standards’’ to refer to the more
relaxed regulatory standards that would
apply to certain categories of workers—
such as the workers above the earnings
threshold in the example above—under
this approach. This Part VI also uses the
term ‘‘more-stringent standards’’ to refer
to the stricter standards that would
420 See supra Part V, in the section-by-section
analysis for proposed § 910.1(c), for additional
discussion of this issue.
421 See proposed § 910.3.
apply to certain categories of workers,
such as the workers below the earnings
threshold in the second example above.
As described above in Part II.C.1, the
recent non-compete clause statutes
many states have enacted have generally
differentiated among categories of
workers. Most of these states have
restricted non-compete clauses only for
workers below a threshold based on the
worker’s earnings or a similar factor,
such as whether the worker is non-
exempt under the FLSA or whether the
worker is an hourly worker.422
There are three main ways a rule
could differentiate among workers.
First, a rule could apply different
standards to workers based on the
workers’ job functions or occupations.
For example, a rule could apply more-
lenient standards to non-compete
clauses for senior executives or could
exempt them from coverage altogether.
Second, a rule could apply different
standards to workers based on some
combination of job functions/
occupations and a worker’s earnings.
For example, the rule could apply more-
lenient standards to workers who
qualify for the FLSA exemptions for
‘‘executives’’ and ‘‘learned
professionals.’’ 423 Workers qualify for
these FLSA exemptions (which exempt
the worker from minimum-wage and
overtime-pay rules) if they earn above a
certain amount and perform certain
types of job duties.424 Another potential
alternative could be to apply more-
lenient standards to a worker who
qualifies for any FLSA exemption.425
Third, like the recent state statutes
described above, a rule could apply
different standards based on the
worker’s earnings. An earnings
threshold could be relatively high (as in,
e.g., the State of Washington, where a
non-compete clause is void unless the
worker’s annual earnings exceed
$100,000 for employees and $250,000
for independent contractors); in the
middle (as in, e.g., Virginia, where
employers may not enter into, enforce,
or threaten to enforce a non-compete
clause with a worker whose average
weekly earnings are less than the
Commonwealth’s average weekly wage);
or relatively low (as in, e.g., Maryland,
where non-compete clauses are void
422 See supra Part II.C.1.
423 See 29 CFR 541.100; 29 CFR 541.200.
424 See Dep’t of Labor, Fact Sheet #17A:
Exemption for Executive, Administrative,
Professional, Computer & Outside Sales Employees
Under the Fair Labor Standards Act (FLSA) (Sept.
2019).
425 See Dep’t of Labor, Handy Reference Guide to
the Fair Labor Standards Act, entry under
Exemptions, https://www.dol.gov/agencies/whd/
compliance-assistance/handy-reference-guide-
flsa#8.
where a worker earns equal to or less
than $15 per hour or $31,200 per
year).426 The Commission also believes
if it were to adopt a threshold based on
earnings, it would be appropriate to
index the earnings level to inflation, to
ensure as well as possible that the
threshold continues to correspond to the
Commission’s justification for it.
A rule could also differentiate among
workers based on a different factor, or
based on some combination of factors.
The Commission preliminarily
concludes applying the rule uniformly
to all workers would advance the
proposed rule’s objectives to a greater
degree than differentiating among
workers. As described in Part V above,
non-compete clauses obstruct labor
market competition in a similar way for
all workers, regardless of a worker’s
income or job status.427 Whether a labor
market includes high earners or low-
wage workers, non-compete clauses
block workers in that market from
switching to jobs in which they would
be better paid and more productive—
restricting the opportunities of all
workers in that labor market. The
Commission estimates the proposed rule
would increase earnings for workers
across the labor force, as well as for
workers in all of the subgroups of the
labor force for which sufficient data are
available—from hourly workers to
highly paid, highly skilled workers such
as executives.428 Excluding these
workers from the proposed rule would
deny these workers the benefits of
higher earnings through increased
competition in the market for their
labor.
The Commission also preliminarily
concludes a rule that applies uniformly
to all workers would better ensure
workers are aware of their rights under
the rule. For example, the Commission
believes employers generally know
whether a particular worker is exempt
under the FLSA, but many workers may
not know this themselves. Therefore, if
the Rule were to prohibit non-compete
clauses with FLSA non-exempt workers,
and an employer were to enter into a
non-compete clause with an FLSA non-
exempt worker in violation of the Rule,
the worker may not know whether the
non-compete clause is valid.
If the Commission were to adopt a
final rule differentiating among
categories of workers, it may also adopt
a severability clause indicating the
Commission intends for the standards to
426 See supra note 149 and accompanying text.
427 See supra Part V (in the section-by-section
analysis for proposed § 910.2(a)).
428 See infra Part VII.B.1.a.

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3519
be severable.429 If a regulatory provision
is severable, and one part of the
provision is invalidated by a court, the
court may allow the other parts of the
provision to remain in effect.430 When
analyzing whether a provision is
severable, courts consider both (a) the
agency’s intent and (b) whether severing
the invalid parts of the provision would
impair the function of the remaining
parts.431 Including a severability clause
would clarify the Commission’s intent
that, if a court were to invalidate the
standards for one category of workers,
the other standards would remain in
effect. The Commission also believes if
it were to adopt a final rule
differentiating between categories of
workers, and a court were to strike
down the rules for one category, that
would not impair the function of the
remaining provisions. If every worker
falls into only one category, and one or
more (but not all) of the standards were
to be invalidated, an employer could
simply comply with the standards that
remain in effect.
The Commission seeks comment on
whether it should differentiate between
workers rather than adopting a rule that
applies uniformly to all workers. In
addition, the Commission seeks
comment on what the specific
threshold(s) should be.
B. Discrete Alternatives
As described above, there are two key
dimensions of alternatives related to the
fundamental design of the rule. The first
is whether the rule should impose a
categorical ban on non-compete clauses
or a rebuttable presumption of
unlawfulness. The second is whether
the rule should apply uniformly to all
workers or whether there should be
exemptions or different standards for
different categories of workers, using
one or more thresholds based on a
worker’s job functions, earnings, some
other factor, or some combination of
factors. The different permutations of
the answers to each of these questions
yield the different alternatives for the
rule’s fundamental design. As a result,
the number of potential alternatives to
the proposed rule is nearly limitless.
However, for the purpose of focusing
public comment, this Part VI.B
describes four discrete alternatives to
the proposed rule. The Commission
preliminarily believes each of these
alternatives may further the objectives
of the proposed rule, to some degree.
429 The Commission may adopt a severability
clause even if it did not apply different standards
to the different categories of workers.
430 See, e.g., Davis Cnty. Solid Waste Mgmt. v.
EPA, 108 F.3d 1454, 1459 (D.C. Cir. 1997).
431 Id. at 1460.
For each of the alternatives described
below, the Commission could adopt a
variety of different thresholds. As
described above in Part VI.A.2, a
threshold could be based on job
functions, the worker’s occupation,
earnings, some other factor, or some
combination of factors. A threshold
could be set relatively high, relatively
low, or in the middle.
1. Alternative #1: Categorical Ban Below
Threshold, Rebuttable Presumption
Above
Under Alternative #1, the rule would
categorically ban the use of non-
compete clauses for some workers and
apply a rebuttable presumption of
unlawfulness to non-compete clauses
for the other workers. For example, the
rule could ban non-compete clauses
generally, but apply a rebuttable
presumption to workers who qualify for
the FLSA exemptions for executives or
learned professionals.432 Or the rule
could ban non-compete clauses but
apply a rebuttable presumption to
workers who earn more than $100,000
per year.
The Commission is not proposing this
approach due to the preliminary
concerns, described above in Parts
VI.A.1 and VI.A.2, about the rebuttable
presumption approach and about
differentiating among categories of
workers. However, the Commission
seeks comment on this alternative.
2. Alternative #2: Categorical Ban Below
Threshold, No Requirements Above
Under Alternative #2, the rule would
categorically ban the use of non-
compete clauses for some workers and
not apply any requirements to the other
workers. In effect, the other workers
would simply be exempt from coverage
under the rule. This approach would be
similar to the recent non-compete clause
statutes many states have enacted.433
For example, like the recent State of
Washington statute, the rule could
prohibit the use of non-compete clauses
for employees earning $100,000 or less
per year and independent contractors
earning less than $250,000 or less per
year. Or, like the recent Massachusetts
and Rhode Island statutes, the rule
could prohibit the use of non-compete
clauses for workers who are non-exempt
under the FLSA.
The Commission is not proposing this
approach due to its preliminary
concerns, described above in Part
VI.A.2, about differentiating among
categories of workers. However, the
432 See supra note 423–424 and accompanying
text.
433 See supra note 149.
Commission seeks comment on this
alternative.
3. Alternative #3: Rebuttable
Presumption for All Workers
Under Alternative #3, the rule would
apply a rebuttable presumption of
unlawfulness to non-compete clauses
for all workers. This approach would be
similar to the proposed rule in that it
would apply uniformly to all U.S.
workers. However, instead of a
categorical ban, the rule would apply a
rebuttable presumption. The
Commission is not proposing this
approach due to its preliminary
concerns with the rebuttable
presumption approach, which are
described above in Part VI.A.1.
However, the Commission seeks
comment on this alternative.
4. Alternative #4: Rebuttable
Presumption Below Threshold, No
Requirements Above
Under Alternative #4, the rule would
apply a rebuttable presumption of
unlawfulness to non-compete clauses
for some workers and not apply any
requirements to the other workers. This
approach would be similar to
Alternative #2, except that, instead of
categorically banning non-compete
clauses for workers below the threshold,
the rule would apply a rebuttable
presumption. The Commission is not
proposing this approach due to the
preliminary concerns, described above
in Parts VI.A.1 and VI.A.2, about the
rebuttable presumption approach and
about differentiating among categories
of workers. However, the Commission
seeks comment on this alternative.
The Commission seeks comment on
each of these alternatives described in
this Part VI.B, including whether the
alternative would advance the
objectives of the proposed rule to a
greater or lesser degree than the
proposed rule, and how the Commission
should design the rule if it were to
adopt the alternative.
C. Different Standards for Senior
Executives
In addition to seeking comment
generally on whether the rule should
apply uniformly to all workers or
differentiate between categories of
workers,434 the Commission seeks
comment specifically on whether it
should adopt different standards for
non-compete clauses with senior
executives.435
434 See supra Part VI.A.2.
435 The Commission could also define senior
executives as a separate category, but apply the
Continued

3520 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
The proposed rule would
categorically ban non-compete clauses
for all workers, including senior
executives. However, the Commission
recognizes non-compete clauses for
senior executives may present distinct
concerns. As described in Part IV, the
Commission preliminarily finds that,
like non-compete clauses for other
workers, non-compete clauses for senior
executives negatively affect competitive
conditions in labor markets.436 The
Commission also preliminarily finds
non-compete clauses for senior
executives negatively affect competitive
conditions in product and service
markets, and they may do so in unique
ways.437 However, unlike non-compete
clauses for other workers, the
Commission does not preliminarily find
non-compete clauses for senior
executives are exploitative and coercive
at the time of contracting or at the time
of the worker’s potential departure.438
Given that non-compete clauses for
senior executives may present distinct
concerns, the Commission is interested
in the public’s views about whether
different standards for senior executives
would be appropriate. For example, the
Commission could adopt a categorical
ban on non-compete clauses for workers
in general, but apply a rebuttable
presumption of unlawfulness for senior
executives or exempt senior executives
altogether.
The Commission seeks comment on
how, if the Commission were to adopt
different standards for senior
executives, this category of workers
should be defined. The Commission is
not aware of a generally accepted legal
definition of ‘‘senior executive.’’ This
term may be challenging to define, given
the variety of organizational structures
used by employers. The Commission
could cross-reference a definition in an
existing federal regulation, such as the
definition of ‘‘named executive officer’’
in Securities and Exchange Commission
(SEC) Regulation S–K 439 or the
definition of ‘‘executive officers’’ in SEC
Rule 3b–7; 440 adopt a definition closely
based on a definition in an existing
federal regulation; adopt a new
definition; define the category according
to a worker’s earnings; use some
combination of these approaches; or use
a different approach. The Commission
seeks comment on what definition
would draw the appropriate line—with
same standards to senior executives as to other
workers.
436 See supra Part IV.A.1.a.i.
437 See supra Part IV.A.1.a.ii.
438 See supra Part IV.A.1.b–c.
439 17 CFR 229.402(a)(3).
440 17 CFR 203.501(f).
respect to which workers should be
covered by the different standards—
while providing sufficient clarity to
employers and workers.
In addition, the Commission seeks
comment on whether these different
standards should also be applied to
other highly paid or highly skilled
workers who are not senior executives,
including specifically how such a
category should be defined.
D. Coverage of Non-Compete Clauses
Between Franchisors and Franchisees
The proposed rule would state the
term ‘‘worker’’ does not include a
franchisee in the context of a franchisee-
franchisor relationship.441 As a result,
the proposed rule would not cover non-
compete clauses between franchisors
and franchisees.442 As described above
in Part V, the Commission believes that,
in some cases, the relationship between
a franchisor and franchisee may be more
analogous to the relationship between
two businesses than the relationship
between an employer and a worker. In
addition, the evidentiary record before
the Commission relates primarily to
non-compete clauses that arise solely
out of employment; the Commission has
surveyed the available evidence relating
to non-compete clauses and is not aware
of research on the effects of applying
additional legal restrictions to non-
compete clauses between franchisors
and franchisees. Therefore, the
Commission believes it is appropriate to
clarify that a franchisee—in the context
of a franchisor-franchisee relationship—
is not a ‘‘worker’’ for purposes of
proposed § 910.1(f).443 (Proposed
§ 910.1(f) would explain, however, the
term ‘‘worker’’ includes a natural person
who works for the franchisee or
franchisor, and non-compete clauses
between franchisors and franchisees
would remain subject to federal
antitrust law as well as all other
applicable law.)
While the Commission is not
currently proposing to cover franchisor/
franchisee non-compete clauses for
these reasons, the Commission
recognizes that, in some cases, these
non-compete clauses may present
concerns under Section 5 similar to the
concerns presented by non-compete
clauses between employers and
workers. Many franchise agreements
may contain non-compete clauses.444 By
441 See proposed § 910.1(f).
442 For ease of reference, this Part VI refers to
these types of non-compete clauses as ‘‘franchisor/
franchisee non-compete clauses.’’
443 See supra Part V (in the section-by-section
analysis for proposed § 910.1(f)).
444 See, e.g., Brian Callaci, Sergio Pinto, Marshall
Steinbaum, & Matthew Walsh, Vertical Restraints
restricting a franchisee’s ability to start
a new business, franchisor/franchisee
non-compete clauses could potentially
stifle new business formation and
innovation, reduce the earnings of
franchisees, and have other negative
effects on competitive conditions
similar to non-compete clauses between
employers and workers. Franchisor/
franchisee non-compete clauses could
also potentially be exploitative and
coercive in some cases, such as where
there is an imbalance of bargaining
power between the parties. While the
relationship between franchisors and
franchisees may, in some cases, be more
analogous to a business-to-business
relationship, many franchisees lack
bargaining power in the context of their
relationship with franchisors and may
be susceptible to exploitation and
coercion through the use of non-
compete clauses.445
For these reasons, the Commission
seeks comment on whether the Rule
should cover franchisor/franchisee non-
compete clauses and why. The
Commission also seeks comment on
whether, if the Rule were to cover
franchisor/franchisee non-compete
clauses, they should be categorically
banned or subject to a rebuttable
presumption of unlawfulness (and if the
latter, what the standard for rebutting
the presumption should be). The
Commission further seeks comment on
whether, if the rule were to cover
franchisor/franchisee non-compete
clauses, the rule should apply uniformly
to all such non-compete clauses or
whether certain categories of franchisor/
franchisee non-compete clauses should
be exempted or subject to different
standards. The Commission encourages
commenters to submit data or other
evidence that could inform the
Commission’s consideration of this
issue.
E. Other Alternatives
This Part VI.E describes two
alternatives the Commission believes
would likely not further the objectives
of the proposed rule. However, this
assessment is preliminary. Based on the
public comments and the Commission’s
and Labor Markets in Franchised Industries (July 6,
2022), https://papers.ssrn.com/sol3/
papers.cfm?abstract_id=4155571 (finding that, in a
sample of 530 franchising contracts, various types
of vertical restraints were prevalent, while not
specifically addressing non-compete clauses). The
Commission has also frequently encountered non-
compete clauses in franchise agreements. See supra
Part II.D (describing consent orders that restricted
a franchisor’s ability to enforce non-compete
clauses).
445 See, e.g., Brian Callaci & Sandeep Vaheesan,
Antitrust Remedies for Fissured Work, Cornell L.
Rev. (forthcoming), https://papers.ssrn.com/sol3/
papers.cfm?abstract_id=4076274 at 21–22.

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3521
additional analysis, the Commission
could potentially decide to adopt one or
both of the alternatives described below
in a final rule instead of, or in addition
to, the proposed rule or one of the
alternatives described above. The
Commission seeks comment on each of
the two alternatives described in this
Part VI.E, as well as whether there are
other alternatives not described in Part
VI that the Commission should
consider.
1. Disclosure Rule
The Commission could potentially
adopt disclosure requirements related to
non-compete clauses.446 For example,
research suggests many workers often
do not find out about non-compete
clauses until after they have accepted an
employment offer.447 This concern
could be addressed by requiring an
employer to disclose to a worker, before
making the employment offer, that the
worker will be subject to a non-compete
clause. The employer could also
potentially be required to explain the
terms of the non-compete clause and
how the worker would be affected by
signing the non-compete clause.
While there is evidence disclosure of
non-compete clauses to workers prior to
acceptance of a job offer may increase
earnings, increase rates of training, and
increase job satisfaction for that
worker,448 the Commission does not
believe this alternative would achieve
the objectives of the proposed rule.
Merely ensuring workers are informed
about non-compete clauses would not
address one of the Commission’s central
concerns: that, in the aggregate, they are
negatively affecting competitive
conditions in labor markets—including
impacts on workers who are not bound
by non-compete clauses—and in
markets for products and services.
Moreover, the benefits of a disclosure
rule may be limited due to the
differential in bargaining power
between many workers and their
employers, which would hamper those
workers’ ability to negotiate for better
employment terms.449
2. Reporting Rule
The Commission could also
potentially require employers to report
certain information to the Commission
relating to their use of non-compete
clauses. For example, employers that
use non-compete clauses could be
446 The Commission’s Franchise Rule requires
non-compete clauses to be disclosed to a franchisee.
16 CFR 436(i); 436(q).
447 Marx (2011), supra note 55 at 706.
448 Starr, Prescott, and Bishara, supra note 42 at
75.
449 See supra Part IV.A.1.b.
required to submit a copy of the non-
compete clause to the Commission. This
would enable the Commission to
monitor the use of non-compete clauses.
It would also potentially discourage
employers from using non-compete
clauses where they are clearly not
justified under existing law.
However, the Commission does not
believe a reporting rule would achieve
the objectives of the proposed rule.
Merely requiring employers to submit
their non-compete clauses to the
Commission may not meaningfully
reduce the prevalence of non-compete
clauses. As a result, it may not remedy
the extent to which non-compete
clauses adversely affect competitive
conditions in labor markets and product
and service markets. A reporting rule
would also impose significant and
recurring compliance costs on
employers.
The Commission seeks comment on
all aspects of this Part VI, including
whether the Commission should adopt
one of the alternatives described above,
or a different alternative, instead of the
proposed rule.
VII. Analysis of Benefits and Costs of
the Proposed Rule and Alternatives
The proposed rule would provide it is
an unfair method of competition—and
thus a violation of Section 5 of the FTC
Act—for an employer to enter into or
attempt to enter into a non-compete
clause with a worker; maintain with a
worker a non-compete clause; or
represent to a worker that the worker is
subject to a non-compete clause where
the employer has no good faith basis to
believe the worker is subject to an
enforceable non-compete clause.450 The
proposed rule is targeted at increasing
competition in labor markets by
allowing workers to move more freely
between jobs and increasing
competition in product markets by
ensuring firms are able to hire talented
workers and workers are able to found
entrepreneurial ventures.
The proposed rule is intended to
alleviate two primary competitive
problems. First, non-compete clauses
anticompetitively interfere in the
functioning of labor markets without
generating compensating benefits. Non-
compete clauses prevent firms from
competing for workers’ services and
increase barriers to voluntary labor
mobility, obstructing the smooth
functioning of labor markets, resulting
in lower wages and diminished worker
and firm productivity.
The second competitive problem is
non-compete clauses create negative
450 See proposed § 910.2(a).
spillovers in labor markets and in
product and service markets. In labor
markets, non-compete clauses
negatively impact workers who are not
themselves bound by non-compete
clauses by preventing the opening of
vacancies and thereby creating
mismatches between labor and firms. In
product and service markets, non-
compete clauses prevent entrepreneurial
growth, which negatively impacts
consumers by reducing competition in
those markets. Non-compete clauses
also foreclose competitors’ ability to
access labor market talent, negatively
affecting those competitors’ ability to
effectively compete in the marketplace.
Additionally, non-compete clauses
impede innovation, which may
negatively impact technological growth
rates.
Section 22 of the FTC Act requires the
Commission to issue a preliminary
regulatory analysis when publishing a
proposed rule that would declare a
practice to be an unfair method of
competition under Section 5 of the FTC
Act.451 The preliminary regulatory
analysis must contain (1) a concise
description of the need for, and
objectives of, the proposed rule; (2) a
description of any reasonable
alternatives to the proposed rule which
may accomplish the stated objective of
the rule in a manner consistent with
applicable law; and (3) for the proposed
rule, and for each of the alternatives
described in the analysis, a preliminary
analysis of the projected benefits and
any adverse economic effects and any
other effects.452
In the preliminary analysis below, we
describe the anticipated impacts of the
rule as proposed. Where possible, we
quantify the benefits and costs. If a
benefit or cost is quantified, we indicate
the sources of the data relied upon. If an
assumption is needed, the text makes
clear which quantities are being
assumed. We measure the benefits and
costs of the rule against a baseline in
which no rule regarding non-compete
clauses has been promulgated by the
Commission. The Commission solicits
comments from the public to improve
the assumptions used in this
preliminary analysis before
promulgation of any final rule.
This preliminary analysis attempts to
include in its scope the broadest set of
economic actors possible. The
Commission invites submission of
information pertaining to additional
economic actors who would be affected
by the proposed rule. Several of the
benefits and costs described in this
451 15 U.S.C. 57b–3.
452 15 U.S.C. 57b–3(b)(1)(A)–(C).

3522 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
analysis are either quantifiable, but not
monetizable (especially with respect to
separation between transfers, benefits,
and costs), or not quantifiable at all. The
Commission therefore also invites
submission of information which could
be applied to quantify or monetize
estimates contained in the analysis.
For some of the economic effects of
non-compete clauses, conflicting
evidence exists in the academic
literature. We classify these effects
under both benefits and costs, and
discuss divergences in the evidence, as
well as relative strengths and
weaknesses of the evidence.
The Commission seeks comment on
all aspects of the preliminary analysis
presented in this Part VII as well as
submissions of additional data that
could inform the Commission’s analysis
of the benefits, any adverse economic
effects, and any other effects of the
proposed rule.
A. Overview of the Effects of the
Proposed Rule
In this preliminary regulatory
analysis, we have quantified and
monetized those costs and benefits for
which we are able and described all
other costs and benefits. The
Commission finds substantial benefits of
the proposed rule: workers’ earnings
would likely increase by $250–$296
billion annually (though some portion
of this represents an economic transfer
from firms to workers), new firm
formation and competition would
increase, health care prices would fall
(and prices in other markets may fall),
and innovation would increase, though
several of these benefits overlap (e.g.,
increases in competition may fully or in
part drive decreases in prices and
increases in innovation). The
Commission also finds some costs of the
proposed rule: direct compliance and
contract updating would result in $1.02
to $1.77 billion in one-time costs, and
firm investment in worker training and
capital assets would fall.
The nature of the estimates, however,
creates substantial difficulty in
calculating a bottom-line present value
of the net benefit to the economy of the
proposed rule. The Commission
believes the substantial labor and
product market benefits of the proposed
rule would exceed the costs, and
additionally would persist over a
substantially longer time horizon than
some of the one-time costs of
compliance and contract updating.
However, we do not present here an
estimate of the net benefit, as it would
necessarily omit major components of
both costs and benefits. In particular,
the numbers reported above are not
comparable in order to estimate the net
benefit of the rule: as noted, some
portion of the earnings increase estimate
represents transfers rather than benefits;
several benefits and costs are
unmonetized in this analysis; and
several of the annualized benefits and
costs (including the portion of the
earnings increase attributable to benefit)
may persist indefinitely, as compared
with the one-time compliance and
contract updating costs.
B. Estimated Benefits of the Proposed
Rule
In this Part VII.B, we describe the
beneficial impacts of the proposed rule;
provide preliminary quantitative,
monetized estimates where possible;
and describe benefits we can only assess
qualitatively. We enumerate benefits in
two broad categories (further divided
into subcategories): benefits related to
labor markets and benefits related to
goods and service markets.
Overall, the Commission estimates
worker earnings would increase by
$250–$296 billion annually as a result
of the proposed rule. While the
Commission believes some of this
increase represents an economic benefit,
some portion of this increase likely
represents a transfer of income from
firms to workers, or from consumers to
workers if firms pass labor costs on to
consumers. The Commission also finds,
however, the proposed rule would
increase the rate of new firm formation,
the rate of innovation, and the extent of
competition in product and service
markets, which may lead to lower prices
for consumers, though the sizes of these
effects are not quantifiable based on the
estimates in the economic literature
(except in the case of healthcare).
1. Benefits Related to Labor Markets
By preventing workers from changing
employers or embarking upon
entrepreneurial ventures, non-compete
clauses prevent beneficial labor market
competition in two primary ways. First,
non-compete clauses prevent workers
from leaving their job for higher-paying
jobs, or from leveraging such an offer to
increase their earnings at their current
employer. Second, non-compete clauses
reduce voluntary churn in labor
markets. While churn is not necessarily
beneficial in and of itself, voluntary
churn allows workers (who would
otherwise be bound by non-compete
clauses) and firms to sort into the best
possible matches and opens vacancies,
which allow workers who are not
necessarily bound by non-compete
clauses to find better matches. Both
mechanisms exhibit, at least in part, as
earnings losses for workers when non-
compete clauses enforceability
increases; however, the extent to which
earnings gains associated with the
proposed rule represent benefits versus
transfers may depend on the
mechanism. We describe in which cases
we are and are not able to categorize,
quantify, and monetize these estimates
below.
a. Earnings
The primary impact of the proposed
rule is an increase in earnings or
earnings growth for workers, and more
efficient functioning of labor markets. A
full analysis of this benefit would seek
to quantify the entire range of
heterogeneity in the effect of the
proposed rule on earnings. In other
words, for any given worker, the likely
impact on that worker’s earnings is
based on whether that worker has a non-
compete clause, whether non-compete
clauses are broadly used in their
occupation/industry/local area, how
much that worker earns, that worker’s
demographics, and much more. While
some studies have sought to quantify
heterogeneous impacts of non-compete
clauses and their enforceability on
subgroups of workers, this accounting is
limited to fairly small sectors of the
population. For this reason, we focus
primarily on estimates of average effects
across the American labor force, though
we provide details on what
heterogeneity has been analyzed below.
The study containing the most direct
estimate of the increase in workers’
earnings given a prohibition on non-
compete clauses finds that earnings
would increase across the labor force by
an average of 3.3–13.9%.453 For several
reasons, we primarily focus on the low
end of this range: in addition to
generating the most conservative
estimate, this range represents an out-of-
sample approximation and is
furthermore based on enforceability in
2014. Since then, some states have
passed legislation causing non-compete
clauses to be more difficult to enforce
for subsets of their workforces, therefore
causing a prohibition on non-compete
clauses today to have a slightly lesser
effect than a prohibition would have
had in 2014.454 Using total annual wage
earnings in the United States for private
employers in 2020 (the most recent year
with finalized numbers) as a baseline,455
we estimate a total annual earnings
453 Johnson, Lavetti, & Lipsitz, supra note 63 at
2.
454 See supra Part II.C.1.
455 National annual earnings are taken from
Bureau of Labor Statistics, Employment and Wages
Data Viewer (last visited Dec. 9, 2022), https://
data.bls.gov/cew/apps/data_views/data_
views.htm#tab=Tables.

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3523
increase of $250.05 billion. We also 	the percentage increase in earnings that 	discounted earnings increases using
report the total annual earnings increase 	fall within the range reported in the 	both 3% and 7% discount rates.
that is associated with other levels of 	study in Table 1, in addition to 10-year
TABLE 1
Percentage increase in earnings
(%)
Total annual
earnings
increase
($ billion)
Total 10-year
earnings
increase, 3%
discount rate
($ billion)
Total 10-year
earnings
increase, 7%
discount rate
($ billion)
3.3 ................................................................................................................................................
5.0 ................................................................................................................................................
7.0 ................................................................................................................................................
9.0 ................................................................................................................................................
11.0 ..............................................................................................................................................
13.0 ..............................................................................................................................................
13.9 ..............................................................................................................................................
250.05
378.86
530.41
681.95
833.50
985.04
1,053.24
2,132.97
3,231.78
4,524.49
5,817.20
7,109.91
8,402.63
8,984.35
1,756.24
2,660.98
3,725.37
4,789.76
5,854.15
6,918.54
7,397.51
Another study estimates decreased
non-compete clause enforceability
would increase earnings by
approximately 1%. This study uses, as
a control group, occupations which use
non-compete clauses at a low rate: the
estimate therefore represents the
differential effect on occupations which
use non-compete clauses at a high rate,
relative to the control group. While the
study does estimate the separate impact
of non-compete clause enforceability for
each group, there is no way to
disentangle this effect from state-
specific effects (e.g., that California does
not typically enforce non-compete
clauses, and also differs from other
states in many ways).456 Since workers
in occupations which use non-compete
clauses at a low rate may also be
affected by changes in non-compete
clause enforceability, the reported
increase in earnings likely
underestimates the impact on the entire
labor force. The change in enforceability
which generates this estimate is a one
standard deviation change, as measured
using non-compete clause enforceability
scores 457 for all 50 states and the
District of Columbia in 1991. Applying
the 1% earnings effect estimate to each
state (based on the scores in 2009), we
calculate that each state moving to non-
enforceability (as would be the case
under the proposed rule) would result
in an overall annual earnings increase of
$295.9 billion.458
456 Starr, supra note 66 at 792–93.
457 Non-compete clause enforceability scores,
used for this estimate as well as several others, are
calculated using various methods based on legal
descriptions provided in various editions of ‘‘Non-
Compete Clauses: A State-by-State Survey’’ by Brian
M. Malsberger.
458 The total earnings increase is calculated as the
sum over all states of:
(e 0.0099*(State’s Enforceability Score—Lowest State Enforceability
Score)-1)*(Total Annual Wages of the State)
This calculation assumes that all workers benefit
from the increase in earnings, as opposed to
The Commission’s preliminary
finding is therefore the proposed rule
would increase workers’ earnings
workforce-wide by $250–$296 billion
annually. We discuss in Part VII.B.1.b
the extent to which the Commission
believes this increase represents a
benefit of the proposed rule versus a
transfer.
Four broad classes of workers merit
specific attention, as researchers have
generated empirical estimates of the
effects of non-compete clause
enforceability based specifically on
those sectors. These classes are (a) high-
tech workers; (b) physicians; (c) workers
paid on an hourly basis; and (d) CEOs.
We clarify that the effects we present on
each of these specific classes of workers
are contained within the broader
estimates presented above: that is, the
estimates above contain each of these
classes of workers, plus the rest of the
labor force. The specific estimates for
each class of workers are therefore
presented to indicate the range of effects
observed in the labor market and to
illustrate the scope of empirical work
that has been performed on the topic.
i. High-Tech Workers
One study examines the impact of
non-compete clause enforceability on
high-tech workers in Hawaii.459 That
study includes estimates for the entirety
of the high-tech work force, as well as
for newly hired workers. Since the ban
in Hawaii did not void previously
signed non-compete clauses, while the
proposed rule would, we use the
calculating the benefits to those in high-use
occupations versus those in low-use occupations.
The benefit of this approach is that it yields a total
predicted earnings increase for the economy as a
whole, rather than a comparison between different
types of workers. However, it is likely an
overestimate for workers in low-use occupations,
and an underestimate for those in high-use
occupations.
459 Balasubramanian et al., supra note 68 at S349.
estimate for newly hired workers. This
is because that estimate reflects the
effects on those workers who were
subject to a regime with no non-compete
clause enforceability. Extrapolating from
the estimates for Hawaii to the average
impact on high-tech workers in each
state, a prohibition such as the one in
this proposed rule would increase
earnings of high-tech workers in the
average state by 4.8%.460 Caution is
recommended in interpreting this
extrapolation, however, since results
from one sector within one state may
not necessarily inform outcomes that
would occur in the rest of the country.
ii. Physicians
One study reports the effects of non-
compete clause use and enforceability
on the earnings growth of physicians.461
Due to the limitations of the study
design, the main estimate concerns the
impact of non-compete clause use on
earnings growth, rather than the level of
earnings.462 However, assuming
physicians begin at an identical level of
earnings, a physician with a non-
compete clause would have an
estimated 89% earnings growth over a
ten-year period, versus an estimated
36% for a physician without a non-
compete clause. In other words, the
physician with a non-compete clause
would have earnings approximately
460 The increase in earnings in each state is
calculated as
e (0.0441*(State’s Enforceability Score Lowest State Enforceability
Score)/(Hawaii’s Enforceability Score Lowest State’s Enforceability
Score)-1, where 0.0441 represents the impact of
Hawaii’s prohibition on log earnings for newly
hired high-tech workers (Table 2, Panel A, Column
5).
461 Lavetti, Simon, & White, supra note 53 at
1025.
462 In Table 4 of the study, the table which reports
earnings effects, the authors include a ‘‘job-match’’
fixed effect, which rules out several alternate
explanations for the authors’ findings but leaves the
authors unable to estimate the base effect of having
a non-compete clause on earnings.

3524 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
39% greater than the physician
without.463
This estimate, however, is based
solely on non-compete clause use, and
does not consider the impact of
enforceability changing. Use of non-
compete clauses is likely determined by
several characteristics of an employer
(e.g., the value of trade secrets or client
attraction, productivity gains associated
with training, nearness of potential
competitors), some of which may also
cause changes in earnings levels or
earnings growth. Taking the separate
effect of non-compete clause
enforceability into account, it is possible
that the estimated effect on earnings
growth would differ from the estimates
reported above.
The combined effect of enforceability
and use on earnings growth may
separately be estimated using another
model in the same study.464 We note
that the authors state this model
presents only ‘‘suggestive evidence.’’
Furthermore, while this model does
estimate the effect of non-compete
clause use on physicians’ earnings (in
contrast to that reported above, which
only examines earnings growth), as well
as the interaction between use and
enforceability, it does not report the
baseline effect of non-compete clause
enforceability, independent of use.465
Using those estimates, nonetheless,
allows for estimation of the impact of
simultaneously removing non-compete
clause enforceability and non-compete
clause use on earnings at various levels
of experience (omitting the baseline
effect of enforceability, which is not
reported). For a physician with 10 years
of experience in the state which
enforces non-compete clauses most
readily, the estimates suggest a
prohibition on non-compete clauses and
removing that physician’s non-compete
clause would lead to a 12.7% increase
in earnings, in contrast with the results
of the model reported above.466 For the
identical situation for a physician with
just 1 year of experience, the increase in
earnings would be 37.4%. We
emphasize, however, that if the baseline
effect of enforceability (which the
authors are unable to estimate) is large,
463 Calculated as 1.89/1.36 1 = 39%.
464 The estimates are presented in Table 6,
Column 2.
465 In Table 6 of the study, the authors use local
market fixed effects: again, these fixed effects are
necessary to rule out alternate explanations for their
findings, but prevent estimation of the baseline
impact of non-compete clause enforceability on
earnings.
466 The increase in earnings are calculated as
e B 1, where B is the sum of each of the coefficients
on NCA, NCA*Log Exp, Bishara Score*NCA, and
Bishara Score*NCA*Log Exp, each multiplied by
the relevant variable.
it could qualitatively change the effect
on earnings of a simultaneous change in
enforceability and use that we report.
iii. Workers Paid on an Hourly Basis
One study analyzed how Oregon’s
2008 prohibition on non-compete
clauses for hourly workers impacted
their wages.467 The study estimates
Oregon’s prohibition increased hourly
workers’ earnings by 2.3%, with twice
the effect (4.6%) on workers in
occupations which use non-compete
clauses at a relatively high rate.468
Extrapolating from the estimates for
Oregon to the average impact on hourly
workers in each state, a prohibition such
as the one in this proposed rule would
increase earnings of hourly workers in
the average state by 2.3%.469 Caution is
recommended in interpreting this
extrapolation, however, since results
from one segment of the workforce
within one state may not necessarily
inform outcomes that would occur in
the rest of the country.
iv. CEOs
One estimate of the impact of non-
compete clause enforceability finds that
moving from full enforceability of non-
compete clauses to a prohibition would
increase earnings growth by 8.2% and
the level of earnings by 12.7% for
CEOs.470 Again ignoring heterogeneity
and implementing a linear extrapolation
using 2009 enforceability scores, the
average CEO would experience a 9.4%
increase in earnings due to the
prohibition in the proposed rule.471
Another study simultaneously
examines the effect of use of a non-
compete clause and the enforceability
thereof.472 This study finds that
decreased enforceability of non-compete
clauses led to lower earnings for CEOs
when use of non-compete clauses is
held constant. However, this study also
finds that, when non-compete clause
enforceability decreases (as it would
467 Lipsitz & Starr, supra note 46 at 143.
468 Id. at Table 3, columns 3 and 4, respectively;
percent changes are calculated as e b 1, where b is
the relevant reported coefficient.
469 The increase in earnings in each state is
calculated as
e (0.023*(State’s Enforceability Score Lowest State Enforceability
Score)/(Oregon’s Enforceability Score Lowest State’s Enforceability
Score) 1, where 0.023 represents the impact of
Oregon’s prohibition on log earnings for hourly
workers (Table 3, Column 3).
470 Garmaise, supra note 69 at 376–425. We
assume the average level of in-state competition for
the estimate of the effect on the level of earnings,
as reported in Table 1.
471 We first calculate the difference between each
state’s score and the lowest score (which represents
a full prohibition) after normalizing scores to a 0
to 1 scale. Then, we find the average of that
difference (0.742) and multiply by the estimated
change of 12.7% to arrive at 9.4%.
472 Kini, Williams, & Yin, supra note 52 at 4701.
under the proposed rule), non-compete
clause use does not stay constant; it
decreases.473 As a result, the
Commission believes the appropriate
way to extrapolate based on the findings
of this study is to take into account both
the impact of non-compete clause
enforceability decreasing and the effect
of non-compete clause use decreasing.
When this relationship is taken into
account, decreases in non-compete
clause enforceability (as would occur
under the proposed rule) result in
greater earnings for CEOs. The study
estimates an increase in enforceability
of 1 on a 0 to 12 scale increases CEO
noncompete use by 10.2 percentage
points in their sample: therefore, a
prohibition on non-compete clauses
would affect CEOs’ earnings via the
effect the study attributes to
enforceability alone, as well as by
changing the use of non-compete
clauses by CEOs, which has its own
effect on earnings, according to the
study.474
Assuming a baseline level of
enforceability, it is possible to use the
estimates from this study to calculate
the impact on CEOs’ earnings of
simultaneously decreasing
enforceability and non-compete clause
use to zero (which would mirror the
effect of the proposed rule). At the
highest level of enforceability (9; Florida
from 1997–2014), setting enforceability
to zero and eliminating non-compete
clauses from contracts would increase
CEOs’ earnings by 11.4%, based on this
study. From a lower baseline level of
enforceability (for example, 3, as in New
York from 1992 to 2014), setting
enforceability to zero and eliminating
non-compete clauses from contracts
would increase earnings by 14.1%.475
Based on the results of these two
studies, the Commission therefore
believes total compensation for CEOs
would increase by 9.4% as a result of
the proposed rule. This estimate is
based on the first study discussed: while
the results from the second study are
qualitatively similar, the extent to
which its results can be extrapolated are
murkier due to the reliance on the
secondary estimate of how non-compete
clause use changes with non-compete
clause enforceability. Ultimately, this
finding is in accordance with findings
473 The study estimates that an increase in
enforceability of 1 on a 0 to 12 scale increases CEO
noncompete use by 10.2 percentage points in their
sample. Id. at 4718.
474 Id.
475 The estimated impact of an increase in
enforceability on CEOs with non-compete clauses is
calculated as the effect of the sum of the coefficients
on CEO noncompete × HQ Enforce and HQ enforce
(i e., 0.4% = e(0.047–0.043) 1).

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3525
in other segments of the labor force.
Similar to typical workers, non-compete
clauses prevent employers from
competing for the labor of CEOs,
including by offering better
remuneration. Therefore, CEOs, like
other workers, are locked into jobs in
ways that prevent them from taking
advantage of positive changes in labor
market conditions.
b. Discussion of Transfers Versus
Benefits
It is difficult to determine the extent
to which the earnings effects discussed
above represent transfers versus
benefits. In the context of this analysis,
transfers refer to ‘‘monetary payments
from one group to another that do not
affect total resources available to
society.’’ 476 In other words, transfers do
not represent a net benefit or cost to the
economy as a whole.
Broad increases in earnings when
non-compete clauses are prohibited may
simply represent a transfer of income
from firms to workers (or, if firms pass
labor costs on to consumers, from
consumers to workers). There may,
however, be a related benefit if the
earnings increase of workers is related
to market power or efficiency in the
labor market. In other words, if a
prohibition on non-compete clauses
leads to a more efficient allocation of
labor in the market, perhaps due to a
rebalancing of power between workers
and employers which decreases
monopsony power, then the resulting
earnings increases may represent a net
benefit to the economy.
Additionally, if earnings increases are
due to higher quality matching which
results from increased labor market
churn, then increased pay reflects a
benefit to the economy, since workers’
higher pay reflects higher productivity.
Several pieces of evidence support the
idea that at least part of the increase in
earnings represents a social benefit,
rather than just a transfer. As described
above in Part II.B.1.c, two studies have
sought to estimate the external impact of
non-compete clause use or
enforceability: that is, the effect of use
or enforceability on individuals other
than those directly affected by use or
enforceability.
First, one study demonstrates when
the use of non-compete clauses by
employers increases, that decreases
wages for workers who do not have non-
compete clauses but who work in the
same state and industry. This study also
finds this effect is stronger where non-
compete clauses are more
476 Off. of Mgmt. & Budget, Circular A–4 (Sept. 17,
2003) at 38.
enforceable.477 Since the affected
workers are not bound by non-compete
clauses themselves, the differential in
earnings does not completely represent
a transfer due to a change in bargaining
power between a worker bound by a
non-compete clause and their employer,
though available data does not allow for
an estimate of the magnitude of transfers
versus the total increase in economic
benefit.
A second study directly estimates the
external impact of a change in non-
compete clause enforceability.478 While
use of non-compete clauses is not
observed in the study, the impacts of
changes in a state’s laws are assessed on
outcomes in a neighboring state. Since
the enforceability of the contracts of
workers in neighboring states are not
affected by these law changes, the effect
must represent a change related to the
labor market, which workers in both
states share. The estimate suggests
workers in the neighboring state
experience impacts on their earnings
that are 87% as large as workers in the
state in which enforceability
changed.479 In other words, two workers
who share a labor market would
experience nearly the same increase in
their earnings due to a prohibition on
non-compete clauses, even if the
prohibition only impacts one worker.
While the study does not directly
estimate the differential effects by use,
the effects on workers unaffected by a
change in enforceability may be similar
to the effects on workers not bound by
non-compete clauses.
Overall, these two studies suggest
there are market-level dynamics
governing the relationship between
earnings and the enforceability of non-
compete clauses: that restrictions on the
enforceability of non-compete clauses
impact competition in labor markets by
alleviating frictions and allowing for
more productive matching. Changes in
enforceability or use of non-compete
clauses affect earnings of workers who
do not have non-compete clauses or
who work in local labor markets near,
but not in, locations which experience
changes in enforceability. If non-
compete clauses simply changed the
relative bargaining power of workers
and firms, without affecting market
frictions or competition, then these
patterns would not be observed.
With a full accounting of all other
costs and benefits, one could perform a
‘‘sensitivity analysis’’ to estimate how
477 Starr, Frake, & Agarwal, supra note 76 at 961–
80.
478 Johnson, Lavetti, & Lipsitz, supra note 63 at
26.
479 Calculated as 	0.181/ 0.207=87%.
Coefficients taken from id. at Table 6, Column 2.
much the percentage of earnings
increases that represent benefits, rather
than transfers, would affect the net
impact of the proposed rule. However,
as discussed, we are unable to fully
monetize, or even quantify, several costs
and benefits associated with the
proposed rule. We present, instead, a
partial sensitivity analysis which
answers the question: for a given level
of costs, what percentage of the earnings
increases would offset those costs? The
costs may be interpreted as the overall
net cost of the rule, excluding benefits
associated with earnings increases: that
is, the costs listed in the table are the
direct compliance and contract updating
costs, plus the nonquantifiable and
nonmonetizable costs, minus all
benefits, excluding benefits associated
with earnings increases.
The estimates are presented in Table
2. In order to present the most
conservative estimates possible, we
assume the earnings increase represents
the lowest end of the range we estimate
from the empirical literature ($250.05
billion). We discount annually at the
rate of 7% (which is more conservative
than a 3% discount rate, given that the
costs are more front-loaded than the
benefits due to the upfront compliance
costs and costs of contract updating),
and assume that annualized benefits
and costs persist for 10 years. The first
estimate, for zero or negative net cost,
demonstrates that, if the non-earnings-
related benefits of the proposed rule
outweigh the total costs of the proposed
rule, then the costs are already offset,
and no portion of the earnings increase
must be a benefit. The next estimate for
costs is the midpoint of the estimates
presented for direct compliance and
contract updating costs, as estimated in
Part VII.C: if the costs of the proposed
rule (excluding direct compliance and
contract updating costs) exactly offset
the benefits (excluding earnings-related
benefits), then if 0.08% of the earnings
increases are benefits, they would
exactly offset the estimated $1.394
billion costs of direct compliance and
contract updating (where that estimate
is the midpoint of the estimated range).
While the Commission does not have
detailed or complete enough
quantifiable and monetizable estimates
to determine whether net costs are
positive or negative, the rest of Table 2
presents estimates for the portion of the
earnings increase which would offset
net costs greater than $1.394 billion,
should they exist.

3526 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
TABLE 2
Portion of
earnings
Net cost estimate 	increase that
($ million) 	offsets the cost
estimate
(%)
0 or Negative .................... 	0.00
1,394 ................................. 	0.08
5,000 ................................. 	0.28
10,000 ............................... 	0.57
15,000 ............................... 	0.85
20,000 ............................... 	1.14
25,000 ............................... 	1.42
30,000 ............................... 	1.71
35,000 ............................... 	1.99
40,000 ............................... 	2.28
45,000 ............................... 	2.56
50,000 ............................... 	2.85
2. Benefits Related to Product and
Service Markets
There is evidence the proposed rule
would positively impact the markets for
products and services in multiple ways.
Studies show that new firm formation
would rise under a prohibition on non-
compete clauses, for two primary
reasons: first, workers would be free to
form spin-offs which compete with their
employers, contributing to increased
competition and growth. Second, firms
are more willing to enter markets in
which they know there are potential
sources of skilled and experienced
labor, unhampered by non-compete
clauses.
Another possible benefit of the
proposed rule related to markets for
products and services is that worker
flows across employers contribute to
knowledge sharing, resulting in
increased levels of innovation.
We note that, to the extent
productivity increases of firms may be
shared with workers, some of the
benefits outlined in this Part VII.B.2
may overlap with the earnings estimates
outlined above in Part VII.B.1.a.
Similarly, to the extent harms to
incumbent firms (due to, e.g., increased
competition) may negatively impact
workers, those would also be reflected
in the earnings estimates.
a. Increased Firm Formation and
Competition
Intra-industry employee spinoffs (i.e.,
firms formed by entrepreneurs who
previously worked for a firm against
which they now compete—also known
as within-industry spinouts or WSOs)
have been shown to be highly
successful, on average, when compared
with typical entrepreneurial
ventures.480 Non-compete clauses
480 For reviews of the literature, see, e.g., Steven
Klepper, Spinoffs: A Review and Synthesis, 6
typically reduce the prevalence of intra-
industry spinoffs, and therefore prevent
entrepreneurial activity that is likely to
be highly successful. One estimate
implies that a one-standard-deviation
increase in non-compete clause
enforceability decreases the rate of
WSOs by 0.13 percentage points (against
a mean of 0.4%).481 The proposed
prohibition, by extrapolation, would
result in an overall increase in the rate
of WSOs by 0.56 percentage points,
which would more than double the rate
of WSOs. We note this is a linear
approximation and cannot account for
heterogeneous effects of enforceability
across states, nor can it account for
nonlinearities in the impact of
enforceability (as neither analysis is
reported in the study).
The study also estimates the impact
on the entry rate of non-WSOs (i.e.,
spinoffs into other industries), and
calculates a coefficient statistically
indistinguishable from zero (0.07
percentage point increase associated
with a one standard deviation increase
in enforceability).482
Another study similarly estimates the
impacts of non-compete clause
enforceability on departures of
employees to found new firms, as well
as on all new firm entry.483 These
outcomes differ slightly from the ones
previously reported: for employee
departures to found new firms, the
target industry of the employee spinoff
is not reported (so the effect
encompasses both within-industry and
out-of-industry spinoffs). The latter
outcome encompasses all new firm
entry, not just spinoffs. There are pros
and cons of this approach, relative to
studying only spinoffs. On the one
hand, it examines an outcome less likely
to be directly impacted by non-compete
clauses. On the other hand, if firms are
encouraged to enter when non-compete
clauses are more easily enforceable (due
to, e.g., greater projected protection of
knowledge assets), then this approach
will likely identify effects that may
appear only weakly when looking just at
spinoffs.
For each outcome, the estimated effect
of an increase in non-compete clause
enforceability (which is, in this study,
measured by a collection of discrete
legal changes) is negative: an increase in
non-compete clause enforceability
decreases the rate at which employees
European Mgmt. Rev. 159–71 (2009) and April
Franco, Employee Entrepreneurship: Recent
Research and Future Directions, in Handbook of
Entrepreneurship Research (2005) 81–96.
481 Starr, Balasubramanian, & Sakakibara, supra
note 87 at 561.
482 Id. at 561.
483 Jeffers (2019), supra note 92 at 1.
leave to become founders of firms by
0.78 percentage points, against a mean
in the sample of 5% (though the result
is statistically indistinguishable from
zero),484 and decreases the rate of new
firm entry by 0.06 firms per million
people (against a mean of 0.38) for firms
in the knowledge sector, compared with
firms in other sectors (for which there
is no statistically significant effect). Due
to the design of the study, the change in
legal enforceability is not quantified,
and therefore no extrapolation is
possible to the country as a whole.
Three more estimates related to firm
entry exist in the literature. One
examines the differential impacts of
venture capital (‘‘VC’’) funding on firm
entry: it finds a 1% increase in VC
funding increases business formation by
2.3% when non-compete clauses are not
enforceable, and by 0.8% when non-
compete clauses are enforceable.485
Another study examined the extent to
which a legal enforceability increase in
Michigan affected firm entry, and found
that, among all sectors, there was no
change in the entry rate of new firms
(none of the estimated coefficients were
statistically significant).486 Among high-
tech firms, the increase in enforceability
was associated with a 40.3% increase in
entry when compared with states that
did not enforce non-compete clauses.
However, the study also notes that,
compared with its neighbors, or using a
statistical technique to match
Michigan’s trend in firm entry
(synthetic control method), the
estimated effect was statistically
indistinguishable from zero. Finally, a
study examining the effect of an
increase in enforceability in Florida
found small firm (fewer than 50
employees) entry fell by 5.6%, while
large firm (greater than 1,000
employees) entry increased by 8.5%.
Similarly, employment at large
businesses rose by 15.8% following the
change, while employment at smaller
businesses effectively did not
change .487 The net effect was a 4.4%
increase in concentration, as measured
by a Herfindahl-Hirschman Index, due
to the overall increase in the size of
484 The estimated effect is statistically significant
at the 10% level, and nearly doubles to 0.014, when
attention is focused on firms which employ at least
40% of workers in the state in which their
headquarters resides. This is important because it
ensures that a greater portion of the workforce is
subject to the local non-compete clause policy
regime: a broadly dispersed company has workers
subject to many different legal policies surrounding
non-compete clauses, and it is therefore not
surprising that the estimate is unable to distinguish
a large impact of the policy changes.
485 Samila & Sorenson, supra note 112 at 425–38.
486 Carlino, supra note 86.
487 Kang & Fleming, supra note 120 at 674.

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3527
firms. It is important to note that firm
entry, in this study, is not necessarily
new business formation. Indeed, the
authors describe many business entries
into Florida are existing businesses
which are seeking to move or establish
new franchises. The observed effects
may therefore be due to relocations
across state lines, which would likely
not occur under the proposed rule.
For the previously mentioned three
sets of estimates, it is again difficult to
extrapolate to a population-wide
measure of impact, since the ‘‘size’’ of
the enforceability change is not
quantified.
In Part II.B.2.c above, the Commission
states the weight of the evidence
demonstrates new firm formation would
increase under the proposed rule;
however, the Commission is unable to
extrapolate from the studies which
examine this outcome in order to
quantify or monetize the effect.
b. Innovation
Scholars have posited that a lack of
non-compete clause enforceability led
Silicon Valley to become a hub of
technological innovation. One paper
theorizes that, as workers freely flowed
between knowledge firms, those
workers shared ideas and generated
innovations greater than what a fixed set
of workers, not interacting with outside
workers, could have generated.488
Studies have shown labor mobility is
greater when non-compete clauses are
more difficult to enforce.489 However,
those same studies did not directly
show innovation is aided by the free
flow of knowledge workers.
If non-compete clauses inhibit
innovation by creating barriers to
knowledge-sharing, then a prohibition
on non-compete clauses, by alleviating
those barriers, would increase
innovation. Studies have sought to
directly quantify this effect, primarily
focused on patenting activity.
One study examined the impact of
non-compete clause enforceability on
venture capital’s relationship with
innovation. The study found that, when
non-compete clauses are enforceable,
venture capital induced less patenting,
by 6.6 percentage points.490 Two other
studies directly focused on the
relationship between non-compete
clause enforceability and patenting.
One, examining seven changes in non-
compete clause enforceability, finds a
26.6% decline in the value of patents (as
488 Gilson, supra note 88.
489 See, e.g., Fallick, Fleischman, & Rebitzer,
supra note 89 at 472–81; Johnson, Lavetti, & Lipsitz,
supra note 42.
490 Samila & Sorenson, supra note 112 at 432.
measured by changes in stock prices
surrounding the date a patent is granted)
associated with increases in non-
compete clause enforceability.491 The
other, examining the impact of a legal
change in enforceability in Michigan,
finds an increase in non-compete clause
enforceability leads to an increase in the
number of patents per 10,000 residents
of 0.054 (against a mean of 2.20 in
Michigan prior to the legal change).492
There is no clear reason for this
discrepancy in findings. It may be due
to the setting being studied: the study
finding a 26.6% decline in patent value
considers several legal changes in non-
compete clause enforceability, rather
than just using one (as in the Michigan
study) or relying on cross-sectional
differences (as in the study of venture
capital).
While the Commission believes the
strongest evidence (due to the
robustness of the findings across several
legal changes) indicates innovation
would likely increase under the
proposed rule, as described above in
Part II.B.2.d, the Commission is unable
to extrapolate from the relevant studies
to quantify or monetize this benefit.
c. Prices
Several of the effects discussed above,
as well as costs of the proposed rule on
products and service markets, may
possibly filter through to consumer
prices. Prices, therefore, may act as a
summary metric for the impacts on
consumers. We note this metric is
highly imperfect: for example, increased
innovation due to the proposed rule
could cause quality increases in
products, which drives prices up.
Consumers may be better off, even
though prices increased. For this reason,
as well as to avoid double-counting
(since prices may take into account
changes in innovation, investment,
market structure, wages, and other
outcomes), we consider evidence on
prices to be corroborating evidence,
rather than a unique cost or benefit on
its own.
One study estimates the impact of
non-compete clause enforceability on
consumer prices in the market for
physician services.493 The study
estimates moving from the lowest
observed non-compete clause
enforceability score to the highest
would increase prices by 53.3%.
Extrapolating to the effect of the
proposed prohibition nationwide (using
2009 enforceability scores), and
applying percentage price decreases to
491 He, supra note 124 at 22.
492 Carlino, supra note 86 at 40.
493 Hausman & Lavetti, supra note 101 at 258.
state-level physician spending,494 we
estimate health spending would
decrease by $148.0 billion annually. We
note, again, this is a large (linear)
extrapolation from the estimate
provided in the study. Furthermore, this
amount is partially a transfer from
physician practices to consumers, and
additionally, we reiterate this estimate
likely encompasses some of the prior
estimates (i.e., those regarding new firm
formation or innovation), and we
therefore do not count it as a standalone
benefit of the proposed rule.
With respect to other industries, if the
relationship between non-compete
clause enforceability and prices
observed in healthcare markets holds,
the Commission believes prices would
decrease, product and service quality
would increase, or both under the
proposed rule. Insofar as such effects
may be driven by increases in
competition (see Part VII.B.2.a), it is
likely output would also increase.
However, the evidence in the economic
literature is solely based on healthcare
markets (which do comprise a large
portion of spending in the United
States, but are far from all consumer
spending), and while there is evidence
that there are relationships between
non-compete clause enforceability and
concentration, innovation, new firm
formation, and other product market
outcomes, the Commission cannot say
with certainty similar effects would be
present for other products and services.
In many settings, it is theoretically
plausible increases in worker earnings
from restricting non-compete clauses
may increase consumer prices by raising
firms’ costs (though there is
countervailing evidence, especially in
goods manufacturing).495 We note an
absence of empirical evidence that this
mechanism persists in practice, as well
as countervailing forces, such as the
impacts on concentration described
above and positive impacts on
innovation (see Part II.B.2.d).
Additionally, greater wages for workers
freed from non-compete clauses may be
due to better worker-firm matching,
which could simultaneously increase
wages and increase productivity, which
494 The latest available numbers are from 2014.
See Ctrs. for Medicare & Medicaid Servs., National
Health Expenditure Data, Health Expenditures by
State of Provider, 1980–2014 (last visited Dec. 9,
2022), https://www.cms.gov/Research-Statistics-
Data-and-Systems/Statistics-Trends-and-Reports/
NationalHealthExpendData/
NationalHealthAccounts
StateHealthAccountsProvider. We use physician
and clinical spending in 2014 by state of provider.
495 Sebastian Heise, Fatih Karahan, & Ays¸egu¨ l
S¸ahin The Missing Inflation Puzzle: The Role of the
Wage-Price Pass-Through, 54 J. Money, Credit &
Banking 7 (2022).

3528 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
could lead to lower prices. Finally, as
described in Part II.B.2.a, increases in
healthcare prices are not due to pass-
through of greater labor costs.
C. Estimated Costs of the Proposed Rule
In this Part VII.C, we describe the
costs associated with the proposed rule;
provide preliminary quantitative,
monetized estimates where possible;
and describe costs we can only assess
qualitatively. We welcome public
comment regarding the scope of the
costs outlined in this Part VII.C,
especially with respect to direct
compliance costs and the costs of
updating contractual practices.
The Commission estimates firms’
direct compliance costs and the costs of
firms updating their contractual
practices would total $1.02 to $1.77
billion. The Commission also finds
worker training and firm investment in
capital assets would likely decrease
under the proposed rule. Finally, the
Commission finds inconclusive
evidence that the job creation rate
would diminish under the proposed
rule. Given the evidence available, the
Commission is unable to monetize the
estimates of worker training, firm
investment in capital assets, and job
creation, however.
1. Direct Compliance Costs
In order to comply with the proposed
rule, firms must remove non-compete
clauses from workers’ contracts in two
ways. First, to comply with proposed
§ 910.2(a), which states it is an unfair
method of competition to maintain with
a worker a non-compete clause, firms
would need to no longer include non-
compete clauses in the contracts of
incoming workers, which may include
revising existing employment contracts.
Second, to comply with proposed
§ 910.2(b)(1) and (2), firms would need
to rescind existing non-compete clauses
no later than the compliance date and
provide notice to workers that the
worker’s non-compete clause is no
longer in effect and may not be enforced
against the worker.
In order to reduce compliance costs
and increase compliance certainty,
proposed § 910.2(b)(3) would provide
that an employer complies with the
rescission requirement in proposed
§ 910.2(b)(1) where it provides notice to
a worker pursuant to § 910.2(b)(2).
Furthermore, proposed § 910.2(b)(2)(C)
includes model language which may be
provided to the worker in order to
inform the worker that their non-
compete clause is no longer in effect.
We estimate composing and sending
this message in a digital format to all of
a firm’s workers and applicable former
workers would take 20 minutes of a
human resources specialist’s time.
According to the Bureau of Labor
Statistics, the median wage for a human
resources specialist was $29.95 per hour
in 2021.496 The cost of compliance for
currently employed workers is therefore
$29.95/3=$9.98 per firm. According to
the U.S. Census Bureau’s Statistics of
U.S. Businesses database, in 2019 (the
most recent year with data available),
there were 6.10 million firms and 7.96
million establishments in the United
States.497 We estimate the percentage of
firms using non-compete clauses in the
U.S. at 49.4%. This estimate is based on
Colvin and Shierholz’s 2017 survey of
business establishments. Colvin and
Shierholz estimate 49% of
establishments of more than 50
employees use non-compete clauses for
at least some of their employees, and
32% of establishments use non-compete
clauses for all of their employees.498
Conservatively assuming each
establishment must engage in its own
communication (i.e., that a firm’s
headquarters does not have the ability to
send a company-wide email, for
example), this means the total direct
compliance cost for rescinding existing
non-compete clauses and providing
notice is $9.98*7.96
million*0.494=$39.25 million.
To ensure incoming workers’
contracts do not include non-compete
clauses and they fully comply with the
proposed rule, firms may employ in-
house counsel, outside counsel, or
human resource specialists (depending
on the complexity of the relevant non-
compete clause). For many firms, this
process would likely be straightforward
(i.e., simply not using non-compete
clauses or removing one section from a
boilerplate contract). For other firms, it
may be more difficult and require more
time. We assume that, on average,
ensuring contracts for incoming workers
do not have non-compete clauses would
take the equivalent of one hour of a
lawyer’s time (valued at $61.54),499
resulting in a total cost of $61.54*7.96
million*0.494=$241.96 million. We
acknowledge there may be substantial
heterogeneity in the costs for individual
496 See Bureau of Lab. Stats., Occupational
Outlook Handbook, Human Resources Specialists,
https://www.bls.gov/ooh/business-and-financial/
human-resources-specialists.htm.
497 The dataset is available at U.S. Census Bureau,
2019 SUSB Annual Data Tables by Establishment
Industry, https://www.census.gov/data/tables/2019/
econ/susb/2019-susb-annual.html (last visited Dec.
9, 2022).
498 Alexander J.S. Colvin & Heidi Shierholz, Econ.
Pol’y Inst., Noncompete Agreements (2019) at 1.
499 Bureau of Lab. Stats., Occupational Outlook
Handbook: Lawyers, https://www.bls.gov/ooh/legal/
lawyers.htm.
firms; however, we believe this number
is conservative. For firms whose costs of
removing non-compete clauses for
incoming workers is greater, the work of
ensuring contracts comply with the law
would overlap substantially with the
costs of updating contractual practices,
described in the next section.
2. Costs of Updating Contractual
Practices
Firms may seek to update their
contractual practices by expanding the
scope of non-disclosure agreements
(NDAs) or other contractual provisions
to ensure they are expansive enough to
protect trade secrets and other valuable
investments. To do so, firms may use in-
house counsel or outside counsel to
examine and amend current contracts or
enter into new contracts with workers.
The Commission is not aware of
empirical evidence on how much it
costs firms to update their contractual
practices when they can no longer use
non-compete clauses. However, there is
evidence indicating firms that use non-
compete clauses are already using other
types of restrictive employment
provisions. Firms may be doing so
because, among other things, they are
uncertain whether a non-compete clause
will be enforceable, or because they
desire the additional protections NDAs
and other types of restrictive
employment provisions can offer.
Balasubramanian et al. find that 97.5%
of workers with non-compete clauses
are also subject to a non-solicitation
agreement, non-disclosure agreement, or
a non-recruitment agreement, and
74.7% of workers with non-compete
clauses are also subject to all three other
types of provisions.500 Firms that are
already using multiple layers of
protection may not need to expand the
scope of existing restrictive employment
provisions or enter into new ones.
Among the approximately one half of
firms that use non-compete clauses,501
we assume the average firm employs the
equivalent of four to eight hours of a
lawyer’s time to update their contractual
practices. We emphasize this is an
average to underline the fact that there
would likely be large differences in the
extent to which firms update their
contractual practices. Many firms,
including those which use non-compete
clauses only with workers who do not
500 Balasubramanian, Starr, & Yamaguchi, supra
note 40 at 35. We calculate 97.5% as (1–0.6%/
24.2%), where 0.6% represents the proportion of
workers with only a non-compete clause, and no
other post-employment restriction, and 24.2%
represents the proportion of workers with a non-
compete clause, regardless of what other post-
employment restrictions they have.
501 Colvin & Shierholz, supra note 498 at 1.

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3529
have access to sensitive information, or
those which are already using other
types of restrictive employment
provisions to protect sensitive
information, may opt to do nothing.
Other firms may employ several hours
or multiple days of lawyers’ time to
arrive at a new contract.502 Our
estimated range of four to eight hours
represents an average taken across these
different possibilities. For example, if
two-thirds of firms that currently use
non-compete clauses opt to make no
changes to their contractual practices
(for example, because they are one of
the 97.5% of firms which already
implement other post-employment
restrictions, or because they will rely on
trade secret law in the future, or because
they are using non-compete clauses
with workers who do not have access to
sensitive information), and one-third of
such firms spend (on average) the
equivalent of 1.5 to 3 days of an
attorney’s time, this would result in the
estimate of 4–8 hours on average
reported above.
We further emphasize this estimate is
an average across all employers that
would be covered by the rule. There is
likely substantial heterogeneity in the
amount of time firms would use to
update contractual practices; very large
firms that use non-compete clauses
extensively would likely incur greater
costs.
Under the assumption the average
firm that uses a non-compete clause
employs the equivalent of four to eight
hours of a lawyer’s time, we calculate
the total expenditure on updating
contractual practices to range from
$61.54*4*49.4%*6,102,412=$742.07
million to
$61.54*8*49.4%*6,102,412=$1.48
billion. Note that we assume decisions
regarding protection of sensitive
information and contract updating are
made at the firm, rather than
establishment, level, since sensitive
information is likely shared across
business establishments of a firm. The
Commission seeks comment on this
estimate.
3. Firm Investment
Non-compete clauses may impact
investments made by firms in multiple
ways.503 First, a firm may anticipate a
greater return on investment in a worker
with a non-compete clause—since the
worker is unable to take the skills they
attain to a competitor—and may
therefore provide greater levels of
502 These estimates are derived from outreach to
employment attorneys active in assisting firms in
writing their non-compete clauses.
503 For more discussion, see Jeffers (2019), supra
note 92; Starr (2019), supra note 66 at 783–817.
training. Second, since non-compete
clauses increase worker training, firms
may increase investment that
complements human capital when they
are able to use non-compete clauses.
Third, non-compete clauses decrease
competition, which increases returns on
investment at the firm level, inducing
additional investment at the firm level.
This increased investment at the firm
level does not necessarily mean,
however, investment would increase at
the market level, since decreased
competition may also decrease output,
decreasing employed capital stock and
investment in that capital stock.
Once again, the costs described in this
section may overlap with estimates
reported in preceding sections. For
example, if increased enforceability of
non-compete clauses increases training
of workers, and increased training
results in higher wages for workers, then
the estimate of the wage decrease when
enforceability increases already takes
into account the extent to which
increased training increases wages. That
is, if training were held constant, the
earnings increase associated with the
proposed rule would likely be even
larger.
With respect to worker training, one
study finds that an increase in the non-
compete clause enforceability index of
one standard deviation (across states)
results in an increase in the number of
workers who reported receiving training
of 14.7% for workers in occupations
which use non-compete clauses at a
high rate, relative to those in which
non-compete clauses are used at a low
rate.504 Extending this estimate to the
U.S. workforce implies that, on average,
3.1% fewer workers would receive
training in a given year, as a result of the
proposed rule.505
An estimate of the impact of non-
compete clause enforceability on firm
investment in capital assets implies that
an increase in enforceability leads to an
504 Starr (2019), supra note 66 at 796. Estimates
are taken from Table 4, Column 4.
505 The total training decrease is calculated as the
weighted average (where weights are equal to
employment in 2020, the latest year available, taken
from https://data.bls.gov/cew/apps/table_maker/v4/
table_maker.htm) over all states of:
(e 0.0077*(State’s Enforceability Score—Lowest State
Enforceability Score) 1)
This calculation assumes that all workers are
subject to the decrease in training, as opposed to
calculating the decrease to those in high-use
occupations versus those in low-use occupations.
The benefit of this approach is that it yields a total
predicted training decrease for the economy as a
whole, rather than a comparison between different
types of workers. However, it is likely an
overestimate for workers in low-use occupations,
and an underestimate for those in high-use
occupations. It is the same methodology used to
calculate earnings increases in Part VII.B.1.a for the
estimate drawn from the same study.
increase in firms’ net investment to
asset ratio of 1.3 percentage points
(against a mean of 3.5%). The
magnitude of the enforceability increase
which is associated with this change is
not quantified according to the scale
above, however, so it is not possible to
extend this estimate to the population.
Additionally, the estimate is
constructed at the firm level, and it is
not possible to extrapolate the estimate
to the market level, given potential
changes in the composition of the
market associated with changes in non-
compete clause enforceability.
The proposed rule may also impact
the extent to which trade secrets are
shared with workers. Non-compete
clauses are commonly justified as a
means by which firms are able to protect
trade secrets, which may allow those
trade secrets to be shared more freely
with workers, positively impacting
productivity. However, to the best of our
knowledge, there is no available
evidence on this topic which would
allow us to quantify or monetize the
cost, or identify whether it exists in
practice.
4. Job Creation Rates
While non-compete clauses may, in
theory, incentivize firms to create jobs
by increasing the value associated with
any given worker covered by a non-
compete clause, the evidence is
inconclusive. One estimate indicates the
job creation rate at startups increased by
7.8% when Michigan increased non-
compete clause enforceability.506
However, the job creation rate
calculated in this study is the ratio of
jobs created by startups to overall
employment in the state: therefore, the
job creation rate at startups may rise
either because the number of jobs
created by startups rose, or because
employment overall fell. The study does
not investigate which of these two
factors drives the increase in the job
creation rate at startups.
Another study finds that several
increases in non-compete clause
enforceability were associated with a
1.4% increase in average employment at
new firms.507 However, the authors
attribute the increase in average
employment to a change in the
composition of newly founded firms.
The increases in enforceability
prevented the entry of relatively small
startups which would otherwise have
existed. The remaining firms which
entered were therefore larger on average:
this increases the average job creation
506 Carlino, supra note 86 at 16.
507 Starr, Balasubramanian, & Sakakibara, supra
note 87 at 561.

3530 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
rate at new firms, because the average
entering firm is relatively larger.
However, in terms of total jobs created,
it means that increases in enforceability
generate fewer total jobs, if the
mechanism identified by the authors is
correct. A similar mechanism may
explain the results in both studies
above. If that is indeed the case, then an
increased job creation rate among
startups is not a cost of the proposed
rule. Instead, it could actually be a
benefit (albeit unquantifiable), since
non-compete clauses prevent small
firms from existing in the first place.
The Commission therefore believes that,
with respect to job creation rates, the
evidence is inconclusive: it is unclear
whether the negative results have causes
which are actually benign, or even
positive.
5. Litigation Costs
The proposed rule would likely
reduce litigation costs associated with
non-compete clauses, since there would
be little to no uncertainty that the vast
majority of those clauses are prohibited.
However, it is also possible that costs
associated with trade secret claims or
other post-employment restrictions,
such as non-disclosure agreements or
non-solicitation agreements, would
increase. The Commission is not aware
of any evidence indicating the
magnitude of the change in litigation
costs associated with any of these
claims, and it is therefore not clear
whether the net impact on litigation
costs would be a benefit or a cost of the
proposed rule. The Commission seeks
comment on the impact the rule would
have on litigation costs.
D. Discussion of Alternatives
In Part VI of this NPRM, the
Commission describes several
alternatives to the proposed rule. Here,
we discuss the extent to which
implementation of each of these
alternatives would change the analysis
of benefits and costs presented above.
We treat Alternatives 1 and 3 first.
Under Alternative 1, the rule would
categorically ban the use of non-
compete clauses for some workers and
apply a rebuttable presumption of
unlawfulness to non-compete clauses
for other workers. For example, the rule
could ban non-compete clauses
generally, but apply the rebuttable
presumption to workers who qualify for
the FLSA exemptions for executives or
learned professionals.508 Or the rule
could ban non-compete clauses but
apply the rebuttable presumption to
508 See supra notes 423–424 and accompanying
text.
workers who earn more than $100,000
per year. Under Alternative 3, non-
compete clauses for all workers would
be subject to a rebuttable presumption
of illegality.
There are two primary ways in which
a rebuttable presumption of illegality,
rather than a prohibition, could affect
the benefits and costs associated with
the proposed rule. First, a rebuttable
presumption may decrease costs
associated with the proposed rule by
allowing employers to use non-compete
clauses in situations in which the true
benefits of non-compete clauses exceed
the costs. In other words, the non-
compete clauses which survive a
rebuttable presumption may contribute
to economic efficiency to the extent a
court is able to identify efficiency-
enhancing non-compete clauses.
Second, a rebuttable presumption
could increase costs by forcing cases
involving non-compete clauses to be
litigated more frequently, since the line
defining a permissible non-compete
clause would be less bright.
Additionally, there may be situations in
which the presumption would likely
hold (i.e., a given non-compete clause is
likely prohibited under the
presumption), but which are not fought
by workers, fearing they might lose the
case. In such cases, any costs and
benefits associated with non-compete
clauses (such as those outlined in the
preceding sections) would accrue to the
economy.
The two impacts of a change from a
prohibition to a rebuttable presumption
would likely be more drastic for workers
above the threshold (for whom the
presumption would be rebuttable under
Alternative 1), as compared with those
additional workers for whom the
presumption would be rebuttable under
Alternative 3. For the latter set of
workers, there are fewer plausible cases
in which the presumption would be
rebutted, since higher-paid workers
typically have access to greater levels of
sensitive information. This means there
is a smaller efficiency gain to be had
from allowing non-compete clauses
which could plausibly rebut the
presumption; however, it also means
there would likely be fewer litigated
cases since there would be fewer
marginal non-compete clauses.
Therefore, the effect of moving from the
proposed rule to Alternative 1 is likely
more substantial than the effect of
moving from Alternative 1 to
Alternative 3.
The effects of Alternatives 2 and 4
may be analyzed similarly. Under
Alternative 2, the rule would
categorically ban the use of non-
compete clauses for some workers and
not apply any requirements to other
workers. For example, like the recent
State of Washington statute, the rule
could prohibit the use of non-compete
clauses for employees earning $100,000
or less per year and independent
contractors earning less than $250,000
or less per year. Or, like the recent
Massachusetts and Rhode Island
statutes, the rule could prohibit the use
of non-compete clauses for workers who
are non-exempt under the FLSA.509
Under Alternative 4, the rule would
apply a rebuttable presumption of
unlawfulness to non-compete clauses
for some workers and not apply any
requirements to other workers. Workers
above the threshold are most likely to be
those workers for whom firm
investment and training are valuable,
but they are also often uniquely
positioned to found new firms, since
they hold knowledge gained by working
in their industry. Therefore, a large
portion of the benefits associated with
the proposed rule would be lost if
workers above the threshold were not
covered; however, a large portion of the
costs would also be lost, since the need
to restructure contracts to protect
sensitive information would no longer
be present for those workers, and firms
would continue to train and invest in
those workers in the same way they
currently do. Additionally, the earnings
effects for relatively lower-wage workers
appear to be less, based on empirical
work, though the legal changes analyzed
were not perfectly comparable. This
could indicate, again, there are more
substantial benefits to be had from
prohibiting non-compete clauses for
workers above the threshold based on
harms to labor markets, compared with
workers below the threshold.
The alternative under which the rule
would use a different standard for
senior executives, discussed in Part
VI.C, would yield similar effects to the
analyses discussed above. If a rebuttable
presumption were applied to senior
executives, if there are some non-
compete clauses that are efficient, and if
courts are able to appropriately identify
efficient non-compete clauses, then
some non-compete clauses would likely
be used (and may survive challenges)
which are indeed efficient. On the other
hand, costs associated with legal
challenges would likely increase due to
an increased frequency of legal
challenges associated with a less bright
line. If no requirement is applied to
senior executives, then a large portion of
the benefit of the proposed rule, as it
applies to senior executives, would be
lost: benefits associated with increased
509 See supra Part VI.B.2.

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3531
product market competition and
benefits associated with increased labor
market competition. The costs of
restructuring contracts, however, would
be lost, as well.
Another alternative, discussed in Part
VI.D, concerns whether non-compete
clauses between a franchisor and a
franchisee would be covered by the
proposed rule. As noted in Part VI.D,
evidence concerning the impact of
prohibiting non-compete clauses
between franchisors and franchisees
does not exist. The Commission is
therefore unable to estimate the extent
to which the costs and benefits which
would result from the proposed rule
covering those parties would be similar
to those resulting from prohibiting
worker non-compete clauses.
E. Other Major Effects
There are two substantial equity
concerns associated with the proposed
rule which are not captured above. The
first relates to the economic outcomes of
women and racial and ethnic minorities.
Non-compete clauses may affect women
and racial and ethnic minorities more
negatively than other workers. For
example, firms may use the monopsony
power which results from use of non-
compete clauses as a means by which to
wage discriminate, or women (who may
exhibit greater risk aversion, in
practice 510) may be more reluctant to
start businesses when non-compete
clauses are enforceable. One estimate
indicates that gender and racial wage
gaps would close by 3.6–9.1% under a
nationwide prohibition on non-compete
clauses.511 Another estimate indicates
the negative impact of non-compete
clause enforceability on within-industry
entrepreneurship is 15% greater for
women than for men.512
The second equity concern related to
non-compete clauses is that workers
may not be willing to file lawsuits
against deep-pocketed employers to
challenge their non-compete clauses,
even if they predict a high probability
of success. The proposed rule would
substantially mitigate this concern by
enacting a bright-line prohibition,
which the Commission could enforce.
This would mitigate uncertainty for
workers and would be especially
helpful for relatively low-paid workers,
510 See, e.g., Catherine C. Eckel & Philip J.
Grossman, Men, Women and Risk Aversion:
Experimental Evidence, Handbook of Experimental
Economics Results 1 (2008) 1061–073 and Gary
Charness & Uri Gneezy, Strong Evidence For Gender
Differences in Risk Taking, 83 J. Econ. Behavior &
Org. 50–58 (2012).
511 Johnson, Lavetti, & Lipsitz, supra note 63 at
38.
512 Marx (2021), supra note 118 at 8.
for whom access to legal services may
be prohibitively expensive.
VIII. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA),
as amended by the Small Business
Regulatory Enforcement Fairness Act of
1996, requires an agency to either
provide an Initial Regulatory Flexibility
Analysis (IRFA) with a proposed rule or
certify that the proposed rule would not
have a significant impact on a
substantial number of small entities.513
The Commission does not expect the
proposed rule, if adopted, would have a
significant impact on a substantial
number of small entities.
Although small entities across all
industrial classes—i.e., all North
American Industry Classification
System (NAICS) codes—would be
affected, the estimated impact on each
entity would be relatively small. The
Small Business Administration (SBA)
states that, as a rule of thumb, the
impact of a proposed rule could be
significant if the cost of the proposed
rule (a) eliminates more than 10% of the
businesses’ profits; (b) exceeds 1% of
the gross revenues of the entities in a
particular sector, or (c) exceeds 5% of
the labor costs of the entities in the
sector.514 As calculated in Part VIII.D,
the Commission estimates direct
compliance costs and the costs of
updating contractual practices would
result in costs of $317.68 to $563.84 for
single-establishment firms. These costs
would only exceed these sample limits
if the average profit of regulated entities
is $3,177 to $5,638, average revenue is
$31,768 to $56,384, or average labor
costs are $6,353 to $11,276,
respectively. Furthermore, while there
are additional nonmonetizable costs
associated with the proposed rule, there
are also nonmonetizable benefits which
would at least partially offset those
costs, as explained above in Part VII.
Although the Commission certifies
under the RFA that the proposed rule
would not have a significant impact on
a substantial number of small entities,
and hereby provides notice of that
certification to the SBA, the
Commission has determined it is
appropriate to publish an IRFA in order
to describe the impact of the proposed
rule on small entities. The Commission
seeks comment on all aspects of the
IRFA in this Part VIII.
513 5 U.S.C. 603–605.
514 Small Bus. Admin., A Guide for Government
Agencies: How to Comply With the Regulatory
Flexibility Act (August 2017) (hereinafter RFA
Compliance Guide) at 19.
A. Reasons for the Proposed Rule
The Commission describes the
reasons for the proposed rule above in
Part IV.
B. Statement of Objectives and Legal
Basis
The Commission describes the
objectives and legal basis for the
proposed rule above in Part IV and the
legal authority for the rule above in Part
III.
C. Description and Estimated Number of
Small Entities to Which the Rule Would
Apply
The proposed rule would impact all
small businesses, across all industry
classes, that use non-compete clauses.
The Commission does not expect there
are classes of businesses that would face
disproportionate impacts from the
proposed rule.
For the vast majority of industries,
there is no granular data regarding the
percentage of firms that use non-
compete clauses (which could then be
used to calculate the number of small
entities in that industry using non-
compete clauses). Due to this data
limitation and given the relatively stable
percentage of firms using non-compete
clauses across the size distribution,515
we estimate the total number of small
firms across all industries in the U.S.
economy. We then calculate the number
of firms estimated to use non-compete
clauses by applying an estimate of the
percentage of firms using non-compete
clauses to that total. Using the size
standards set by the SBA,516 we
calculate that there are 5.95 million
small firms and 6.24 million small
establishments in the U.S.517 Assuming
515 See Colvin & Shierholz, supra note 498 at 5.
We emphasize that, since smaller firms generally
use non-compete clauses at a lower rate, based on
the numbers reported in Table 1, our estimate of the
number of affected small entities is likely larger
than is true in practice.
516 See Small Bus. Admin., Table of Size
Standards, https://www.sba.gov/document/support-
table-size-standards.
517 We use the latest data available from the U.S.
Census Bureau’s Statistics of U.S. Businesses
database, available based on firm revenue and firm
size. U.S. Census Bureau, Statistics of U.S.
Businesses (SUSB), https://www.census.gov/
programs-surveys/susb.html (last visited Dec. 9,
2022). We deflate to current dollars using Historical
Table 10.1. Off. of Mgmt. & Budget, Historical
Tables, https://www.whitehouse.gov/omb/budget/
historical-tables/ (last visited Dec. 9, 2022). As used
in this analysis, per the U.S. Census Bureau, ‘‘a firm
is a business organization consisting of one or more
domestic establishments in the same geographic
area and industry that were specified under
common ownership or control.’’ On the other hand,
‘‘an establishment is a single physical location at
which business is conducted or services or
industrial operations are performed.’’ See U.S.
Census Bureau, Glossary, https://www.census.gov/
programs-surveys/susb/about/glossary html.

3532 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
49.4% of firms or establishments use
non-compete clauses,518 we estimate
2.94 million small firms, comprising
3.08 million small establishments,
would be affected by the proposed rule.
Since our estimate ignores differential
use of non-compete clauses across
industries (in the absence of more
detailed data), these firms span all
industries and various sizes below the
standards set in the SBA’s size
standards.
D. Projected Reporting, Recordkeeping,
and Other Compliance Requirements
As calculated in Parts VIII.D.1 and
VIII.D.2, the Commission estimates the
direct compliance costs and the costs of
updating contractual practices would
total $246.16 to $492.32 for each small
firm, plus an additional $71.52 for each
establishment owned by that firm. A
single-establishment firm, for example,
would bear estimated costs of $317.68 to
$563.84, for example.
As described in greater detail in Part
VII.C.3, the Commission also finds
worker training and firm investment in
capital assets would likely decrease
under the proposed rule. Finally, as
described in greater detail in Part
VII.C.4, the Commission finds mixed
evidence that the job creation rate
would diminish under the proposed
rule. Given the evidence available, the
Commission is unable to monetize the
estimates of worker training, firm
investment in capital assets, and job
creation, however.
1. Direct Compliance Costs
In order to comply with the proposed
rule, small entities must remove non-
compete clauses from workers’ contracts
in two ways. First, to comply with
proposed § 910.2(a), which states it is an
unfair method of competition to
maintain with a worker a non-compete
clause, small entities would need to no
longer include non-compete clauses in
the contracts of incoming workers,
which may include revising existing
employment contracts. Second, to
comply with proposed § 910.2(b)(1) and
(2), small entities would need to rescind
existing non-compete clauses no later
than the compliance date and provide
notice to workers that the worker’s non-
compete clause is no longer in effect
and may not be enforced against the
worker.
In order to reduce compliance costs
and increase compliance certainty,
proposed § 910.2(b)(3) would provide
that an employer complies with the
rescission requirement in proposed
§ 910.2(b)(1) where it provides notice to
518 See Colvin & Shierholz, supra note 498 at 1.
a worker pursuant to § 910.2(b)(2).
Furthermore, proposed § 910.2(b)(2)(C)
includes model language which may be
provided to the worker in order to
inform the worker that their non-
compete clause is no longer in effect.
We estimate composing and sending
this message in a digital format to all of
a firm’s workers and applicable former
workers would take 20 minutes of a
human resources specialist’s time.
According to the Bureau of Labor
Statistics, the median wage for a human
resources specialist was $29.95 per hour
in 2021.519 The cost of compliance for
currently employed workers is therefore
$29.95/3=$9.98 per firm. As calculated
in Part VIII.C, we estimate there are 2.94
million small firms, comprising 3.08
million small establishments, in the
United States which use non-compete
clauses.520 Conservatively assuming that
each establishment must engage in its
own communication (i.e., a firm’s
headquarters does not have the ability to
send a company-wide email, for
example), this means the total direct
compliance cost for workers who are
already employed is $9.98*3.08
million=$30.74 million.
To ensure incoming workers’
contracts do not include non-compete
clauses and they fully comply with the
proposed rule, firms may employ in-
house counsel, outside counsel, or
human resource specialists (depending
on the complexity of the relevant non-
compete clause). For many firms, this
process would likely be straightforward
(i.e., simply not using non-compete
clauses or removing one section from a
boilerplate contract). For other firms, it
may be more difficult and require more
time. We assume that, on average,
ensuring contracts for incoming workers
do not have non-compete clauses would
take the equivalent of one hour of a
lawyer’s time (valued at $61.54),521
resulting in a total cost of $61.54*3.08
million=$189.54 million. We
acknowledge there may be substantial
heterogeneity in the costs for individual
firms; however, we believe this number
is conservative. For firms whose costs of
removing non-compete clauses for
incoming workers is greater, the work of
ensuring that contracts comply with the
law would overlap substantially with
519 See U.S. Bureau of Lab. Stats., Occupational
Outlook Handbook, Human Resources Specialists,
https://www.bls.gov/ooh/business-and-financial/
human-resources-specialists.htm.
520 The dataset is available at U.S. Census Bureau,
2019 SUSB Annual Data Tables by Establishment
Industry, https://www.census.gov/data/tables/2019/
econ/susb/2019-susb-annual.html, (last visited Dec.
9, 2022).
521 U.S. Bureau of Lab. Stats., Occupational
Outlook Handbook, Lawyers, https://www.bls.gov/
ooh/legal/lawyers.htm.
the costs of updating contractual
practices, described in the next section.
For each establishment of each firm,
we estimate direct compliance costs
would total $9.98+$61.54=$71.52.
2. Costs of Updating Contractual
Practices
Firms may seek to update their
contractual practices by expanding the
scope of non-disclosure agreements
(NDAs) or other contractual provisions
to ensure they are expansive enough to
protect trade secrets and other valuable
investments. To do so, firms may use in-
house counsel or outside counsel to
examine and amend current contracts or
enter into new contracts with workers.
The Commission is not aware of
empirical evidence on how much it
costs firms to update their contractual
practices when they can no longer use
non-compete clauses. However, there is
evidence indicating firms that use non-
compete clauses are already using other
types of restrictive employment
provisions. Firms may be doing so
because, among other things, they are
uncertain whether a non-compete clause
will be enforceable, or because they
desire the additional protections NDAs
and other types of restrictive
employment provisions can offer.
Balasubramanian et al. find that 97.5%
of workers with non-compete clauses
are also subject to a non-solicitation
agreement, non-disclosure agreement, or
a non-recruitment agreement, and
74.7% of workers with non-compete
clauses are also subject to all three other
types of provisions.522 Firms already
using multiple layers of protection may
not need to expand the scope of existing
restrictive employment provisions or
enter into new ones.
Among the approximately one half of
firms that use non-compete clauses,523
we assume the average firm employs the
equivalent of four to eight hours of a
lawyer’s time to update their contractual
practices. We emphasize this is an
average to underline the likelihood of
large differences in the extent to which
firms update their contractual practices.
Many firms, including those which use
non-compete clauses only with workers
who do not have access to sensitive
information, or those which are already
using other types of restrictive
employment provisions to protect
522 Balasubramanian, Starr, & Yamaguchi, supra
note 40 at 35. We calculate 97.5% as (1–0.6%/
24.2%), where 0.6% represents the proportion of
workers with only a non-compete clause, and no
other post-employment restriction, and 24.2%
represents the proportion of workers with a non-
compete clause, regardless of what other post-
employment restrictions they have.
523 Colvin & Shierholz, supra note 498 at 1.

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3533
sensitive information, may opt to do
nothing. Other firms may employ
several hours or multiple days of
lawyers’ time to arrive at a new
contract.524 Our estimated range of four
to eight hours represents an average
taken across these different possibilities.
For example, if two-thirds of firms that
currently use non-compete clauses opt
to make no changes to their contractual
practices (for example, because they are
one of the 97.5% of firms which already
implement other post-employment
restrictions, or because they will rely on
trade secret law in the future, or because
they are using non-compete clauses
with workers who do not have access to
sensitive information), and one-third of
such firms spend (on average) the
equivalent of 1.5 to 3 days of an
attorney’s time, this would result in the
estimate of 4–8 hours on average
reported above.
We further emphasize this estimate is
an average across all employers that
would be covered by the rule. There is
likely substantial heterogeneity in the
amount of time firms would use to
update contractual practices; very large
firms that use non-compete clauses
extensively would likely incur greater
costs.
Under the assumption the average
firm that uses a non-compete clause
employs the equivalent of four to eight
hours of a lawyer’s time, we calculate
the total expenditure on updating
contractual practices to range from
$61.54*4*2.94 million=$723.7 million
to $61.54*8*2.94 million=$1.45 billion.
Note that we assume decisions
regarding protection of sensitive
information and contract updating are
made at the firm, rather than
establishment, level, since sensitive
information is likely shared across
business establishments of a firm. The
Commission seeks comment on this
estimate.
For each firm, we estimate the cost of
updating contractual practices would be
$61.54*4=$246.16 to $61.54*8=$492.32.
E. Identification of Duplicative,
Overlapping, or Conflicting Federal
Rules
The Commission is not aware of any
duplicative, overlapping, or conflicting
federal rules. As described above in Part
II.C.1, the enforceability of a non-
compete clause currently depends on
state law. Non-compete clauses are also
subject to federal antitrust law.
However, the Commission is not aware
of any federal regulations that would
524 These estimates are derived from outreach to
employment attorneys active in assisting firms in
writing their non-compete clauses.
duplicate, overlap, or conflict with the
proposed rule.
F. Discussion of Significant Alternatives
In Part VI above, the Commission
discusses significant alternatives to the
proposed rule. Part VI also includes a
preliminary assessment of whether each
of the significant alternatives would
accomplish the objectives of the
proposed rule. In addition, the
Commission’s analysis of benefits and
costs in Part VII includes an assessment
of the benefits and costs of various
alternatives.525
The Commission is not proposing an
exemption for small entities or different
regulatory requirements for small
entities. The proposed rule would
provide 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; 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.526 For
the reasons described above in Part IV,
the Commission is proposing to provide
these practices are an unfair method of
competition under Section 5. Based on
the available evidence, the Commission
does not believe the analysis in Part IV
above is fundamentally different for
non-compete clauses imposed by small
entities. For this reason, the
Commission is not proposing an
exemption for small entities or different
regulatory requirements for small
entities. The Commission seeks
comment on whether it should propose
a small entity exemption or different
requirements for small entities,
including whether non-compete clauses
used by small entities are less likely to
have the anticompetitive effects
described in Part IV.A above, and
whether employers that are small
entities are less likely than other
employers to have alternatives available
for protecting their investments, as
described in Part IV.B above.
The Commission is also not proposing
a delayed compliance date for small
entities. Under proposed § 910.5,
compliance with the proposed rule
would be required as of the proposed
compliance date, which would be 180
days after publication of the final rule
in the Federal Register.527 In the
Commission’s preliminary view, this
proposed compliance period would
afford small entities a sufficient period
of time to comply with the proposed
525 See supra Part VII.D.
526 See proposed § 910.2(a).
527 See proposed § 910.5.
rule.528 The Commission seeks
comment on whether this is the case.
IX. Paperwork Reduction Act
Under the Paperwork Reduction Act
of 1995 (PRA),529 federal agencies must
obtain approval from the Office of
Management and Budget (OMB) for each
collection of information they conduct
or sponsor. The term ‘‘collection of
information’’ includes any requirement
or request for persons to obtain,
maintain, retain, report, or publicly
disclose information.530 Under the PRA,
the Commission may not conduct or
sponsor, and, notwithstanding any other
provision of law, a person is not
required to respond to, an information
collection unless the information
collection displays a valid control
number assigned by OMB.531
The Commission believes the
proposed rule would contain a
disclosure requirement that would
constitute a collection of information
requiring OMB approval under the PRA.
Proposed § 910.2(a) would state 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; maintain with a worker a non-
compete clause; or, under certain
circumstances, represent to a worker
that the worker is subject to a non-
compete clause. Proposed § 910.2(b)(1)
would state that, to comply with
§ 910.2(a), an employer that entered into
a non-compete clause with a worker
prior to the compliance date must
rescind the non-compete clause no later
than the compliance date.
Proposed § 910.2(b)(2)—the provision
that would contain the disclosure
requirement that would require OMB
approval—would require employers to
provide a notice to workers in certain
circumstances. Specifically, proposed
§ 910.2(b)(2)(A) would require an
employer that rescinds a non-compete
clause pursuant to § 910.2(b)(1) to
provide notice to the worker that the
worker’s non-compete clause is no
longer in effect and may not be enforced
against the worker. Proposed
§ 910.2(b)(2)(A) would also state the
employer must provide the notice to the
worker in an individualized
communication and the employer must
provide the notice on paper or in a
digital format such as, for example, an
email or text message. Proposed
§ 910.2(b)(2)(B) would state the
employer must provide the notice to a
528 See supra Part V, in the section-by-section
analysis for proposed § 910.5.
529 44 U.S.C. 3501 et seq.
530 44 U.S.C. 3502(3); 5 CFR 1320.3(c).
531 44 U.S.C. 3506(c)(1)(B); 5 CFR 1320.5(a)(3).

3534 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
worker who currently works for the
employer. Proposed § 910.2(b)(2)(B)
would also state that the employer must
also provide the notice to a worker who
formerly worked for the employer,
provided the employer has the worker’s
contact information readily available.
Finally, proposed § 910.2(b)(2)(C) would
provide model language that would
satisfy the notice requirement. Proposed
§ 910.2(b)(2)(C) would also state that an
employer may also use different
language, provided the notice
communicates to the worker that the
worker’s non-compete clause is no
longer in effect and may not be enforced
against the worker.
The Commission estimates composing
and sending this message in a digital
format to all workers would take 20
minutes of a human resources
specialist’s time. According to the
Bureau of Labor Statistics, the median
wage for a human resources specialist in
2021 was $29.95 per hour.532 The cost
of compliance for currently employed
workers is therefore $29.95/3 = $9.98
per firm. According to the U.S. Census
Bureau’s Statistics of U.S. Businesses
database, in 2019 (the most recent year
for which data are available), there were
6.10 million firms and 7.96 million
establishments in the United States.533
The Commission estimates the
percentage of firms using non-compete
clauses in the United States at 49.4%.534
This yields an estimated 3,932,240
covered establishments. Conservatively
assuming that each establishment must
engage in its own communication—i.e.,
a firm’s headquarters does not have the
ability to send a company-wide email,
for example—this means covered
employers would incur an estimated
labor cost burden of 1,310,747 hours to
comply with this requirement
(3,932,240 establishments × 20
minutes). The Commission estimates the
associated labor cost for notifying
affected workers who are already
employed is $9.98 × 7.96 million ×
0.494 = $39,243,755.
The proposed rule would impose only
de minimis capital and non-labor costs.
The Commission anticipates covered
employers already have in place
existing systems to communicate with
and provide employment-related
disclosures to workers. While the
532 U.S. Bureau of Lab. Stats., Occupational
Outlook Handbook: Human Resources Specialists,
https://www.bls.gov/ooh/business-and-financial/
human-resources-specialists.htm.
533 U.S. Census Bureau, 2019 SUSB Annual Data
Tables by Establishment Industry (February 2022),
https://www.census.gov/data/tables/2019/econ/
susb/2019-susb-annual html (last visited Dec. 9,
2022).
534 See Colvin & Shierholz, supra note 498 at 4.
proposed rule would require a one-time
disclosure to some workers subject to a
rescinded non-compete clause, the
Commission anticipates this one-time
disclosure would not require substantial
investments in new systems or other
non-labor costs. Moreover, many
establishments are likely to provide the
disclosure electronically, further
reducing total costs.
The Commission invites comments
on: (1) Whether the proposed collection
of information is necessary for the
proper performance of the functions of
the agency, including whether the
information would have practical
utility; (2) the accuracy of the agency’s
estimate of the burden of the proposed
collection of information, including the
validity of the methodology and
assumptions used; (3) ways to enhance
the quality, utility, and clarity of the
information to be collected; and (4)
ways to minimize the burden of these
information collections on respondents.
The Commission seeks comment on all
aspects of this Part IX.
Comments on the proposed reporting
requirements subject to Paperwork
Reduction Act review by OMB should
additionally be submitted to
www.reginfo.gov/public/do/PRAMain.
Find this particular information
collection by selecting ‘‘Currently under
30-day Review—Open for Public
Comments’’ or by using the search
function. The reginfo.gov web link is a
United States Government website
operated by OMB and the General
Services Administration (GSA). Under
PRA requirements, OMB’s Office of
Information and Regulatory Affairs
(OIRA) reviews federal information
collections.
X. Request for Comment
You can file a comment online or on
paper. For the Commission to consider
your comment, we must receive it on or
before March 20, 2023. Write ‘‘Non-
Compete Clause Rulemaking, Matter No.
P201200’’ on your comment. Your
comment—including your name and
your state—will be placed on the public
record of this proceeding, including the
https://www.regulations.gov website.
Because of the public health
emergency in response to the COVID–19
outbreak and the agency’s heightened
security screening, postal mail
addressed to the Commission will be
subject to delay. We strongly encourage
you to submit your comments online
through the https://www.regulations.gov
website. To ensure the Commission
considers your online comment, please
follow the instructions on the web-
based form.
If you file your comment on paper,
write ‘‘Non-Compete Clause
Rulemaking, Matter No. P201200’’ on
your comment and on the envelope, and
mail your comment to the following
address: Federal Trade Commission,
Office of the Secretary, 600
Pennsylvania Avenue NW, Suite CC–
5610 (Annex C), Washington, DC 20580.
Because your comment will be placed
on the publicly accessible website at
https://www.regulations.gov, you are
solely responsible for making sure your
comment does not include any sensitive
or confidential information. In
particular, your comment should not
include any sensitive personal
information, such as your or anyone
else’s Social Security number; date of
birth; driver’s license number or other
state identification number, or foreign
country equivalent; passport number;
financial account number; or credit or
debit card number. You are also solely
responsible for making sure your
comment does not include any sensitive
health information, such as medical
records or other individually
identifiable health information. In
addition, your comment should not
include any ‘‘trade secret or any
commercial or financial information
which . . . is privileged or
confidential’’—as provided by 15 U.S.C.
46(f) and 16 CFR 4.10(a)(2)—including,
in particular, competitively sensitive
information such as costs, sales
statistics, inventories, formulas,
patterns, devices, manufacturing
processes, or customer names.
Comments containing material for
which confidential treatment is
requested must be filed in paper form,
must be clearly labeled ‘‘Confidential,’’
and must comply with 16 CFR 4.9(c). In
particular, the written request for
confidential treatment that accompanies
the comment must include the factual
and legal basis for the request, and must
identify the specific portions of the
comment to be withheld from the public
record. Your comment will be kept
confidential only if the General Counsel
grants your request in accordance with
the law and the public interest. Once
your comment has been posted publicly
at https://www.regulations.gov—as
legally required by 16 CFR 4.9(b)—we
cannot redact or remove your comment,
unless you submit a confidentiality
request that meets the requirements for
such treatment under FTC Rule 4.9(c)
and the General Counsel grants that
request.
Visit the Commission’s website,
www.ftc.gov, to read this NPRM and the
fact sheet describing it. The FTC Act
and other laws the Commission
administers permit the collection of

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3535
public comments to consider and use in
this proceeding as appropriate. The
Commission will consider all timely
and responsive public comments that it
receives on or before March 20, 2023.
For information on the Commission’s
privacy policy, including routine uses
permitted by the Privacy Act, see
https://www.ftc.gov/site-information/
privacy-policy.
XI. Communications by Outside Parties
to Commissioners or Their Advisors
Written communications and
summaries or transcripts of oral
communications respecting the merits
of this proceeding, from any outside
party to any Commissioner or
Commissioner’s advisor, will be placed
on the public record, per 16 CFR
1.26(b)(5).
List of Subjects in 16 CFR Part 910
Antitrust
■ For the reasons set forth above, the
Federal Trade Commission proposes to
add a new subchapter J, consisting of
part 910, to chapter I in title 16 of the
Code of Federal Regulations to read as
follows:
Subchapter J—Rules Concerning Unfair
Methods of Competition
PART 910—NON–COMPETE CLAUSES
Sec.
910.1. Definitions.
910.2. Unfair methods of competition.
910.3. Exception.
910.4. Relation to State laws.
910.5. Compliance date.
Authority: 15 U.S.C. 45 and 46(g).
§ 910.1 Definitions.
(a) Business entity means a
partnership, corporation, association,
limited liability company, or other legal
entity, or a division or subsidiary
thereof.
(b) Non-compete clause, as used in
this part:
(1) Means a contractual term between
an employer and a worker that prevents
the worker from seeking or accepting
employment with a person, or operating
a business, after the conclusion of the
worker’s employment with the
employer.
(2) The term non-compete clause
includes a contractual term that is a de
facto non-compete clause because it has
the effect of prohibiting the worker from
seeking or accepting employment with a
person or operating a business after the
conclusion of the worker’s employment
with the employer. For example, the
following types of contractual terms,
among others, may be de facto non-
compete clauses:
(i) A non-disclosure agreement
between an employer and a worker that
is written so broadly that it effectively
precludes the worker from working in
the same field after the conclusion of
the worker’s employment with the
employer.
(ii) A contractual term between an
employer and a worker that requires the
worker to pay the employer or a third-
party entity for training costs if the
worker’s employment terminates within
a specified time period, where the
required payment is not reasonably
related to the costs the employer
incurred for training the worker.
(c) Employer means a person, as
defined in 15 U.S.C. 57b–1(a)(6), that
hires or contracts with a worker to work
for the person.
(d) Employment means work for an
employer, as the term employer is
defined in paragraph (c) of this section.
(e) Substantial owner, substantial
member, and substantial partner mean
an owner, member, or partner holding at
least a 25 percent ownership interest in
a business entity.
(f) Worker means a natural person
who works, whether paid or unpaid, for
an employer. The term includes,
without limitation, an employee,
individual classified as an independent
contractor, extern, intern, volunteer,
apprentice, or sole proprietor who
provides a service to a client or
customer. The term worker does not
include a franchisee in the context of a
franchisee-franchisor relationship;
however, the term worker includes a
natural person who works for the
franchisee or franchisor. Non-compete
clauses between franchisors and
franchisees would remain subject to
Federal antitrust law as well as all other
applicable law.
§ 910.2 Unfair methods of competition.
(a) Unfair methods of competition. 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; maintain with a worker a non-
compete clause; or represent to a worker
that the worker is subject to a non-
compete clause where the employer has
no good faith basis to believe that the
worker is subject to an enforceable non-
compete clause.
(b) Existing non-compete clauses.
(1) Rescission requirement. To comply
with paragraph (a) of this section, which
states that it is an unfair method of
competition for an employer to maintain
with a worker a non-compete clause, an
employer that entered into a non-
compete clause with a worker prior to
the compliance date must rescind the
non-compete clause no later than the
compliance date.
(2) Notice requirement.
(i) An employer that rescinds a non-
compete clause pursuant to paragraph
(b)(1) of this section must provide notice
to the worker that the worker’s non-
compete clause is no longer in effect
and may not be enforced against the
worker. The employer must provide the
notice to the worker in an
individualized communication. The
employer must provide the notice on
paper or in a digital format such as, for
example, an email or text message. The
employer must provide the notice to the
worker within 45 days of rescinding the
non-compete clause.
(ii) The employer must provide the
notice to a worker who currently works
for the employer. The employer must
also provide the notice to a worker who
formerly worked for the employer,
provided that the employer has the
worker’s contact information readily
available.
(iii) The following model language
constitutes notice to the worker that the
worker’s non-compete clause is no
longer in effect and may not be enforced
against the worker, for purposes of
paragraph (b)(2)(i) of this section. An
employer may also use different
language, provided that the notice
communicates to the worker that the
worker’s non-compete clause is no
longer in effect and may not be enforced
against the worker.
Figure 1 to Paragraph (b)(2)(iii)—Model
Language
BILLING CODE 6750–01–P

A new rule enforced by the Federal Trade Commission makes it unlawful
for us to maintain a non-compete clause in your employment contract. As of
[DATE 180 DAYS AFTER DATE OF PUBLICATION OF THE FINAL RULE],
the non-compete clause in your contract is no longer in effect. This means that
once you stop working for [EMPLOYER NAME]:
• 	You may seek or accept a job with any company or any person-even if
they compete with [EMPLOYER NAME].
• 	You may run your own business-even if it competes with [EMPLOYER
NAME].
• 	You may compete with [EMPLOYER NAME] at any time following your
employment with [EMPLOYER NAME].
The FTC's new rule does not affect any other terms of your employment contract.
For more information about the rule, visit [link to final rule landing page].
3536 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
BILLING CODE 6750–01–C
(3) Safe harbor. An employer
complies with the rescission
requirement in paragraph (b)(1) of this
section where it provides notice to a
worker pursuant to paragraph (b)(2) of
this section.
§ 910.3 Exception.
The requirements of this part 910
shall not apply to a non-compete clause
that is entered into by a person who is
selling a business entity or otherwise
disposing of all of the person’s
ownership interest in the business
entity, or by a person who is selling all
or substantially all of a business entity’s
operating assets, when the person
restricted by the non-compete clause is
a substantial owner of, or substantial
member or substantial partner in, the
business entity at the time the person
enters into the non-compete clause.
Non-compete clauses covered by this
exception would remain subject to
Federal antitrust law as well as all other
applicable law.
§ 910.4 Relation to State laws.
This part 910 shall supersede any
State statute, regulation, order, or
interpretation to the extent that such
statute, regulation, order, or
interpretation is inconsistent with this
part 910. A State statute, regulation,
order, or interpretation is not
inconsistent with the provisions of this
part 910 if the protection such statute,
regulation, order, or interpretation
affords any worker is greater than the
protection provided under this part 910.
§ 910.5 Compliance date.
Compliance with this part 910 is
required as of [DATE 180 DAYS AFTER
DATE OF PUBLICATION OF THE
FINAL RULE].
By direction of the Commission,
Commissioner Wilson dissenting.
April J. Tabor,
Secretary.
Note: the following statements will
not appear in the Code of Federal
Regulations.
Statement of Chair Lina M. Khan Joined
by Commissioner Rebecca Kelly
Slaughter and Commissioner Alvaro M.
Bedoya
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
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’’).

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3537
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
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
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-companies-
impose-harmful-noncompete-restrictions-
thousands-workers.
3 Notice of Proposed Rulemaking for Non-
Compete Clause Rule (‘‘NPRM’’), Part II.B (Jan. 5,
2023).
4 See NPRM Part VII.B.1 (describing the
Commission’s assessment of the benefits of the
proposed rule).
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
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/press-releases/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
proposal determines that employers’ 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
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-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/news-events/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-competitive-
markets-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-limits-future-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-requiring-
divestitures-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).

3538 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
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
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
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.
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’’).
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
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
13 West Virginia v. EPA, 142 S. Ct. 2587, 2617
(2022) (Gorsuch, J., concurring).

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3539
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.
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.
Statement of Commissioner Slaughter
Joined by Commissioner Alvaro M.
Bedoya
One of the great privileges of working
at the Federal Trade Commission is the
opportunity—and responsibility—we
have to help real people in their
everyday lives. We offer that help not
only when we challenge massive
mergers but also when we tackle the
myriad smaller ways in which people
are denied agency and autonomy. When
we fight fraud, manipulative business
opportunities, anticompetitive schemes,
and bogus fees, we help restore
meaningful choice and dignity to
consumers and workers. These
principles are the bedrock of a
democratic society, but too often they
are denied to Americans who are not
rich and powerful. Addressing the
scourge of noncompete clauses that
restrict the job mobility of workers
advances our mission by ensuring that
workers have the chance to compete to
earn a fair wage and family-supporting
benefits.
I am therefore pleased to support the
Commission’s Notice of Proposed
Rulemaking (‘‘NPRM’’) on the
Noncompete Clause Rule under
Sections 5 and 6(g) of the Federal Trade
Commission Act. I am grateful to the
cross-agency team who worked on this
NPRM and thank them for their hard
work and collaborative drafting process.
I also want to thank the civil-society
organizations and academics who filed
a petition with the FTC in 2019 calling
for a rulemaking to address
noncompetes in employment contracts.1
This petition increased the awareness of
and knowledge about the issue not only
within the agency but also with the
public more broadly. That heightened
focus was on display in the FTC’s
noncompete workshop in January
2020.2 As I did at that workshop, I again
thank the labor community for engaging
with the competition community to
tackle the pocketbook issues that sit at
the intersection of labor and antitrust
law and that have profound effects on
workers.3 Several years of activity by
the Commission related to noncompete
clauses in employment contracts have
culminated in this NPRM, which is
another milestone in our effort to more
thoroughly incorporate labor
competition and effects on workers into
our antitrust law analyses.
I write separately to emphasize two
points. First, noncompete clauses, and
the restrictions they place on workers
regarding their future employment or
business creation, are deeply troubling.
Based on the research discussed in the
NPRM, they have serious ramifications
for individual workers and labor
competition broadly, as well as for
consumers. Although sometimes
referred to as noncompete
‘‘agreements,’’ they rarely represent
actual agreements. Instead, they are
often imposed on workers with no
ability to bargain as a condition of
employment. Even when noncompetes
have been ruled unenforceable by courts
or outlawed by legislation, firms
continue to use them, as was alleged in
a recent case the FTC settled over
noncompetes imposed on minimum
wage-earning security guards.4
1 Open Markets Inst. et al., Petition for
Rulemaking to Prohibit Worker Non-Compete
Clauses (March 20, 2019), https://
static1.squarespace.com/static/
5e449c8c3ef68d752f3e70dc/t/
5eaa04862ff52116d1dd04c1/1588200595775/
Petition-for-Rulemaking-to-Prohibit-Worker-Non-
Compete-Clauses.pdf.
2 Fed. Trade Comm’n, Non-Competes in the
Workplace: Examining Antitrust and Consumer
Protection Issues, https://www.ftc.gov/news-events/
events/2020/01/non-compete clauses-workplace-
examining-antitrust-consumer-protection-issues.
3 Remarks of FTC Commissioner Rebecca Kelly
Slaughter, New Decade, New Resolve to Protect and
Promote Competitive Markets for Workers, FTC
Workshop on Non-Compete Clauses in the
Workplace (Jan. 9, 2020), https://www.ftc.gov/
system/files/documents/public_statements/
1561475/slaughter_-_noncompete_clauses_
workshop_remarks_1-9-20.pdf.
4 In the Matter of Prudential Security, Inc., a
corporation; Prudential Command Inc., a
corporation; Greg Wier, a natural person; and
Matthew Keywell, FTC Matter/File Number
Workers restrained by noncompetes
are unable to pursue certain job
opportunities and are therefore deprived
of higher wages and more favorable
working conditions and benefits.
Similarly, businesses that need to hire
workers are inhibited from attracting
and hiring noncompete-restrained
workers through better working
conditions, pay, and benefits.5 Even
more alarming is the evidence that
shows noncompetes reduce earnings for
workers not individually bound by
them.6 Studies also show reduced
entrepreneurship, new-business
formation, or both when workers are
inhibited by noncompetes.7 Finally,
American consumers can suffer from
noncompete clauses through paying
higher prices for lower-quality goods
and services.8 For all these reasons, it is
clear that it is more than appropriate for
the FTC to use our rulemaking authority
under Sections 5 and 6(g) to address
noncompete clauses in employment
contracts.
Second, I strongly encourage the
public to share their lived experiences
and perspectives with the Commission.
I have heard personally about how
noncompete clauses can strike fear into
workers and make them anxious about
their livelihoods. These stories come
from a variety of different industries and
2210026 (January 4, 2023), Complaint ¶ 22, https://
www.ftc.gov/legal-library/browse/cases-
proceedings/2210026-prudential-security-et-al-
matter; Statement of Chair Lina M. Khan Joined by
Commissioner Rebecca Kelly Slaughter and
Commissioner Alvaro M. Bedoya In the Matters of
Prudential Security, O–I Glass Inc., and Ardagh
Group S.A, January 4, 2023, https://www.ftc.gov/
legal-library/browse/cases-proceedings/public-
statements/statement-chair-lina-m-khan-joined-
commissioners-slaughter-bedoya-matters-
prudential-security-o-i.
5 Notice of Proposed Rulemaking, Non-Compete
Clause Rule, Part II.B.1.
6 See Matthew S. Johnson, Kurt Lavetti, & Michael
Lipsitz, The Labor Market Effects of Legal
Restrictions on Worker Mobility 2 (2020), https://
papers.ssrn.com/sol3/papers.cfm?abstract_
id=3455381; Evan Starr, Justin Frake, & Rajshree
Agarwal, Mobility Constraint Externalities, 30 Org.
Sci. 961, 6 (2019).
7 See Sampsa Samila & Olav Sorenson,
Noncompete Covenants: Incentives to Innovate or
Impediments to Growth, 57 Mgmt. Sci. 425, 432
(2011); Jessica Jeffers, The Impact of Restricting
Labor Mobility on Corporate Investment and
Entrepreneurship 22 (2019), https://
papers.ssrn.com/sol3/papers.cfm?abstract_
id=3040393; Evan Starr, Natarajan
Balasubramanian, & Mariko Sakakibara, Screening
Spinouts? How Noncompete Enforceability Affects
the Creation, Growth, and Survival of New Firms,
64 Mgmt. Sci. 552, 561 (2018).
8 See Naomi Hausman & Kurt Lavetti, Physician
Practice Organization and Negotiated Prices:
Evidence from State Law Changes, 13 a.m. Econ. J.
Applied Econ. 258, 284 (2021); Michael Lipsitz &
Mark Tremblay, Noncompete Agreements and the
Welfare of Consumers 6 (2021), https://
papers.ssrn.com/sol3/papers.cfm?abstract_
id=3975864.

3540 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
professions, from fast-food workers to
family physicians.9 Public input from
individuals who are or who have been
bound by noncompetes and from firms
that use them is a critically important
step in the rulemaking process, and it
will help the Commission weigh the
proposed broad ban on noncompete
clauses as well as the alternative
approaches discussed in the NPRM. I
look forward to working with my fellow
Commissioners to achieve a just
outcome that promotes fair competition.
Dissenting Statement of Commissioner
Christine S. Wilson
Today, the Commission announced a
notice of proposed rulemaking
(‘‘NPRM’’) for a Non-Compete Clause
Rule. ‘‘The proposed rule would
provide that it is an unfair method of
competition—and therefore a violation
of Section 5—for an employer to enter
into or attempt to enter into a non-
compete clause with a worker; [or to]
maintain with a worker a non-compete
clause . . .’’ 1 For the many reasons
described below, on the current record,
I do not support initiating the proposed
rulemaking and consequently dissent.
The proposed Non-Compete Clause
Rule represents a radical departure from
hundreds of years of legal precedent
that employs a fact-specific inquiry into
whether a non-compete clause is
unreasonable in duration and scope,
given the business justification for the
restriction. The Commission undertakes
this radical departure despite what
appears at this time to be a lack of clear
evidence to support the proposed rule.
What little enforcement experience the
agency has with employee non-compete
provisions is very recent (within the last
week) and fails to demonstrate harm to
consumers and competition. Lacking
enforcement experience, the
Commission turns to academic
literature—but the current record shows
that studies in this area are scant,
contain mixed results, and provide
insufficient support for the scope of the
proposed rule. And one study illustrates
clearly, in the financial services sector,
the negative unintended consequences
of suspending non-compete provisions,
including higher fees and broker
misconduct. The suspension of non-
competes across all industry sectors in
the U.S. undoubtedly will impose a
9 See People of the State of Ill. v. Jimmy John’s
Enters., LLC, No. 2016–CH–07746 (Cook County Cir.
Ct. filed June 8, 2016); See also Kurt Lavetti, Carol
Simon, & William D. White, The Impacts of
Restricting Mobility of Skilled Service Workers
Evidence from Physicians, 55 J. Hum. Res. 1025,
1042 (2020).
1 Notice of Proposed Rulemaking for Non-
Compete Clause Rule (‘‘NPRM’’) Part I (Jan. 5,
2023).
much larger raft of unintended
consequences.
Setting aside the substance of the rule,
the Commission’s competition
rulemaking authority itself certainly
will be challenged. The NPRM is
vulnerable to meritorious challenges
that (1) the Commission lacks authority
to engage in ‘‘unfair methods of
competition’’ rulemaking, (2) the major
questions doctrine addressed in West
Virginia v. EPA applies, and the
Commission lacks clear Congressional
authorization to undertake this
initiative; and (3) assuming the agency
does possess the authority to engage in
this rulemaking, it is an impermissible
delegation of legislative authority under
the non-delegation doctrine, particularly
because the Commission has replaced
the consumer welfare standard with one
of multiple goals. In short, today’s
proposed rule will lead to protracted
litigation in which the Commission is
unlikely to prevail.
The NPRM invites public comment on
both a sweeping ban on non-competes
and various alternatives pursuant to the
Administrative Procedure Act, not the
Magnuson-Moss Act. Stakeholders
should note that this solicitation for
public comment is likely the only
opportunity they will have to provide
input not just on the proposed ban, but
also on the proposed alternatives. For
this reason, I encourage all interested
parties to respond fully to all parts of
the NPRM’s solicitation of public
comments.
Non-Compete Clauses Merit Fact-
Specific Inquiry
Based on the current record, non-
compete clauses constitute an
inappropriate subject for rulemaking.
The competitive effects of a non-
compete agreement depend heavily on
the context of the agreement, including
the business justification that prompted
its adoption. But don’t take my word for
it—the need for fact-specific inquiry
aligns with hundreds of years of
precedent. When assessing the legality
of challenged non-compete agreements,
state and federal courts (and English
courts before them) have examined the
duration and scope of non-compete
clauses, as well as the asserted business
justifications, to determine whether
non-compete clauses are unreasonable
and therefore unenforceable.2
The NPRM itself acknowledges, at
least implicitly, the relevance of the
circumstances surrounding adoption of
2 See, e.g., United States v. Addyston Pipe & Steel
Co., 85 F. 271, 281 (6th Cir. 1898) (Taft, J.), aff’d
in relevant part, 175 U.S. 211 (1899); Mitchel v.
Reynolds, 1 P. Wms. 181 (1711).
non-compete clauses. For example, the
NPRM proposes an exception to the ban
on non-compete clauses for provisions
associated with the sale of a business,
acknowledging that these non-compete
clauses help protect the value of the
business acquired by the buyer.3
Recognizing that senior executives
typically negotiate many facets of their
employment agreements, the NPRM
distinguishes situations in which senior
executives are subject to non-compete
provisions.4 And to stave off potential
legal challenges, the NPRM proposes
more carefully tailored alternatives to a
sweeping ban on non-compete clauses
that instead would vary by employee
category.
Despite the importance of context and
the need for fact-specific inquiries, the
Commission instead applies the
approach of the newly issued Section 5
Policy Statement 5 to propose a near-
complete ban on the use of non-compete
clauses. Pursuant to this approach, the
Commission invokes nefarious-
sounding adjectives—here, ‘‘exploitive
and coercive’’—and replaces the
evaluation of actual or likely
competitive effects with an
unsubstantiated conclusion about the
‘‘tendency’’ for the conduct to generate
negative consequences by ‘‘affecting
consumers, workers or other market
participants.’’ 6
Using the approach of the Section 5
Policy Statement that enables the
majority summarily to condemn
conduct it finds distasteful, the
Commission today proposes a rule that
prohibits conduct 47 states have chosen
3 NPRM Part V, Section 910.3.
4 Accordingly, the Commission seeks comments
on whether senior executives should be treated
differently from the proposed ban on non-compete
clauses. See NPRM Parts IV.A.1.b, IV.A.1.c. In a
similar vein, recent consent agreements issued for
public comment that prohibit the use of non-
compete agreements in the glass container industry
do not prohibit non-compete clauses for senior
executives and employees involved in research and
development. See O–I Glass, Inc., File No. 211–
0182, https://www.ftc.gov/system/files/ftc_gov/pdf/
2110182o-iglassdraftorderappxa.pdf (Jan. 4, 2023)
(Decision and Order Appendix A); Ardagh Glass
Group S.A., File No. 211–0182, https://www.ftc.gov/
system/files/ftc_gov/pdf/
2110182ardaghdraftorderappxa.pdf (Jan. 4, 2023)
(Decision and Order Appendix A); Christine S.
Wilson, Comm’r, Fed. Trade Comm’n, Dissenting
Statement regarding In the Matter of O–I Glass, Inc.
and In the Matter of Ardagh Group S.A. (Jan. 4,
2023), https://www.ftc.gov/legal-library/browse/
cases-proceedings/public-statements/dissenting-
statement-commissioner-christine-s-wilson-
regarding-matters-o-i-glass-inc-ardagh-group-sa.
5 Fed. Trade Comm’n, Policy Statement Regarding
the Scope of Unfair Methods of Competition Under
Section 5 of the Federal Trade Commission Act
(Nov. 10, 2022), https://www ftc.gov/system/files/
ftc_gov/pdf/
p221202sec5enforcementpolicystatement_002.pdf.
6 Id. at 9.

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3541
to allow.7 Similarly, the Commission’s
proposed rule bans conduct that courts
have found to be legal,8 a concern the
Commission dismisses with a claim that
the Section 5 prohibition on ‘‘unfair
methods of competition’’ extends
beyond the antitrust laws. But the
majority’s conclusions and today’s
proposed rule forbid conduct previously
found lawful under Section 5 of the FTC
Act. Specifically, applying FTC Act
Section 5, the Seventh Circuit found
that ‘‘[r]estrictive [non-compete] clauses
. . . are legal unless they are
unreasonable as to time or geographic
scope[.]’’ 9 In other words, the Seventh
Circuit found that a fact-specific inquiry
is required under Section 5.
The NPRM announced today conflicts
not only with the Seventh Circuit’s
holding, but also with several hundred
years of precedent. With all due respect
to the majority, I am dubious that three
unelected technocrats 10 have somehow
hit upon the right way to think about
non-competes, and that all the
preceding legal minds to examine this
issue have gotten it wrong. The current
rulemaking record does not convince
me otherwise.
I. Non-Compete Agreements—the First
Application of the Section 5 Policy
Statement
The proposed Non-Compete Clause
Rule ‘‘would provide that it is an unfair
method of competition—and therefore a
violation of Section 5—for an employer
to enter into or attempt to enter into a
7 NPRM Part II.C.1. Further, the NPRM explains
‘‘[s]tates have been particularly active in restricting
non-compete clauses in recent years.’’ Id. The
Commission’s rulemaking will end states’ varying
approaches to address non-compete agreements.
The Commission’s preemption of states’ approaches
is premature to the extent that the Commission
admits that it does not know where to draw lines
regarding the treatment of non-compete provisions
(i e., the Commission seeks comments on
alternatives to the proposed ban based on earnings
levels, job classifications, or presumptions). The
Commission ignores the advice of Justice Brandeis
and instead proposes to end states’ experimentation
to determine the optimal treatment of non-compete
clauses. See New State Ice Co. v. Liebmann, 285
U.S. 262, 311 (1932) (‘‘To stay experimentation in
things social and economic is a grave responsibility.
Denial of the right to experiment may be fraught
with serious consequences to the nation. It is one
of the happy incidents of the federal system that a
single courageous state may, if its citizens choose,
serve as a laboratory; and try novel social and
economic experiments without risk to the rest of the
country.’’).
8 See United States v. Empire Gas Corp., 537 F.2d
296, 307–08 (8th Cir. 1976); Lektro-Vend Corp. v.
Vendo Co., 660 F.2d 255, 267 (7th Cir. 1981);
Newburger, Loeb & Co., Inc. v. Gross, 563 F.2d 1057,
1081–83 (2d Cir. 1977); Bradford v. New York
Times Co., 501 F.2d 51, 57–59 (2d Cir. 1974).
9 Snap-On Tools Corp. v. Fed. Trade Comm’n,
321 F.2d 825, 837 (7th Cir. 1963).
10 This characterization is not an insult, but a fact.
I, too, am an unelected technocrat.
non-compete clause with a worker; [or]
to maintain with a worker a non-
compete clause . . .’’ 11 The proposed
ban on non-compete clauses is based
only on alleged violations of Section 5
of the FTC Act; it is not premised on the
illegality of non-compete clauses under
the Sherman or Clayton Acts.
When the Commission issued the
Policy Statement Regarding the Scope of
Unfair Methods of Competition Under
Section 5 of the Federal Trade
Commission Act (‘‘Policy Statement’’) in
November 2022, I warned that the
approach described by the Policy
Statement would enable the
Commission majority to condemn
conduct it disfavors, even when that
conduct repeatedly has been found
lawful.12 I predicted that the approach
to Section 5 enforcement contained in
the Policy Statement would facilitate
expansive enforcement, often without
requiring evidence of anticompetitive
effects. And I cautioned that subjects of
investigations would not be able to
defend their conduct because
procompetitive justifications would not
be credited. The Non-Compete Clause
Rule NPRM provides a graphic
illustration of these concerns.
A. The NPRM’s Determination That
Non-Compete Clauses Are Unfair
The NPRM states that there are 3
independent ways for classifying non-
compete clauses as an ‘‘unfair’’ method
of competition.13 In November, I
objected to the enforcement approach
described in the Section 5 Policy
Statement—specifically, permitting the
Commission majority to condemn
conduct merely by selecting and
assigning to disfavored conduct one or
more adjectives from a nefarious-
sounding list.14 Here, two of the three
explanations the Commission provides
for concluding that non-compete clauses
are unfair rely on invocation of the
adjectives ‘‘exploitive and coercive.’’ 15
The third explanation for the illegality
of non-compete clauses demonstrates
how little evidence the majority requires
to conclude that conduct causes harm.
11 NPRM Part I.
12 See Christine S. Wilson, Comm’r, Fed. Trade
Comm’n, Dissenting Statement Regarding the
‘‘Policy Statement Regarding the Scope of Unfair
Methods of Competition Under Section 5 of the
Federal Trade Commission Act’’ (Nov. 10, 2022),
https://www.ftc.gov/system/files/ftc_gov/pdf/
P221202Section5PolicyWilsonDissentStmt.pdf.
13 NPRM Part IV.A.1.
14 See Wilson, supra note 12.
15 The Policy Statement claimed that
determinations of unfairness would be based on a
sliding scale. Here, the NPRM identifies
independent ways to determine that non-compete
clauses are unfair; no sliding scale is applied.
According to the NPRM, ‘‘non-
compete clauses are exploitive and
coercive at the time of contracting.’’ 16
The NPRM explains that the ‘‘clauses
for workers other than senior executives
are exploitive and coercive because they
take advantage of unequal bargaining
power[.]’’ 17 The business community
will be surprised to learn that ‘‘unequal
bargaining power’’ can lead to a
conclusion that any negotiated outcome
may be condemned as ‘‘exploitive and
coercive,’’ which then can be parlayed
into a finding that the conduct violates
Section 5. Indeed, this assertion is
particularly troubling not merely
because it presages an approach that is
literally limitless, but also because the
imbalance of bargaining power, as in
this setting, arises wholly apart from
any conduct by the business.18 The
reader may note that the NPRM cites
legal decisions to support the
assignment of adjectives. Yet, a careful
reading of the courts’ discussions of the
imbalance of bargaining power between
employers and employees reveals that
while the imbalance may provide a
reason to scrutinize non-compete
clauses, it is not used to condemn or
invalidate them.19 Remarkably, in each
case cited in footnote 253 of the NPRM,
the court found the non-compete
clauses to be enforceable.
Next, the NPRM finds that ‘‘non-
compete clauses are exploitive and
coercive at the time of the worker’s
potential departure from the
employer[.]’’ 20 The NPRM reaches this
conclusion regardless of whether the
clauses are enforced. This conclusion is
16 NPRM Part IV.A.1.b The NPRM explains that
this conclusion does not apply to senior executives
and also seeks comment on whether there is a
broader category of highly paid or highly skilled
employees for whom the conclusion is
inappropriate. Id.
17 Id.
18 According to the NPRM, unequal bargaining
power arises because employees depend on job
income to pay bills, job searches entail significant
transaction costs, the prevalence of unions has
declined, employers outsource firm functions,
employers have more experience negotiating
because they have multiple employees, employees
typically do not hire lawyers to negotiate
agreements, and employees may not focus on the
terms of their contracts. Id.
19 See Alexander & Alexander, Inc. v. Danahy,
488 NE2d 22, 29 (Mass. App. Ct. 1986) (finding
injunction to enforce non-compete agreement
proper); Diepholz v. Rutledge, 659 NE 989, 991 (Ill.
Ct. App. 1995) (finding non-compete agreement
enforceable, but also finding no violation of terms
of non-compete agreement); Palmetto Mortuary
Transp., Inc. v. Knight Sys., Inc., 818 SE2d 724, 731
(S.C. 2018) (finding non-compete agreement
enforceable).
20 NPRM Part IV.A.1.c. Again, the NPRM explains
that this conclusion does not apply to senior
executives and also invites comments on whether
there is a broader category of highly paid or highly
skilled employees for whom the conclusion is
inappropriate. Id.

3542 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
contrary to legal precedent, which
requires enforcement of non-compete
provisions before finding harm.21
Finally, the NPRM finds that ‘‘non-
compete clauses are restrictive conduct
that negatively affects competitive
conditions.’’ 22 Although this basis for
concluding that non-compete provisions
are unfair does not rely solely on the
selection of an adjective, here, the
NPRM demonstrates how little evidence
the majority requires before finding that
conduct is unfair pursuant to the
Section 5 Policy Statement.
Until yesterday, the Commission had
announced no cases (and therefore had
no experience and no evidence) to
conclude that non-compete clauses
harm competition in labor markets. In
fact, the only litigated FTC case
challenging a non-compete clause found
that a non-compete provision covering
franchise dealers did not violate Section
5 of the FTC Act.23 Notably, the NPRM
omits any reference to this case. The
Commission has accepted settlements
regarding non-compete clauses in
contracts between businesses,24 but the
majority itself has distinguished those
cases from non-compete clauses in labor
contracts.25 And in those B2B cases, the
non-compete clauses were associated
with the sale of a business, a situation
that falls within the narrow exception to
the ban provided in the proposed Non-
Compete Clause Rule.
Just yesterday, though, the
Commission rushed out the
announcement of three consent
agreements that resolve allegations that
non-compete provisions constitute an
21 See, e.g., O’Regan v. Arbitration Forums, Inc.,
121 F.3d 1060, 1065–66 (7th Cir. 1997) (‘‘to apply
antitrust laws to restrictive employment covenants,
there must be some attempted enforcement of an
arguably overbroad portion of the covenant in order
for there to be a federal antitrust violation.’’);
Lektro–Vend Corp. v. Vendo Co., 660 F.2d 255, 267
(7th Cir.1981) (‘‘a section 1 violation requires proof
that the defendant knowingly enforced the arguably
overbroad section of the ancillary noncompetition
covenant’’).
22 NPRM Part IV.A.1.a.
23 See Snap-On Tools Corp. v. Fed. Trade
Comm’n, 321 F.2d at 837.
24 See ARKO Corp., FTC File No. 211–0187,
https://www.ftc.gov/system/files/ftc_gov/pdf/
2110087C4773ArkoExpressComplaint.pdf (Aug. 5,
2022); DTE Energy Co., FTC File No. 191–0068,
https://www.ftc.gov/system/files/documents/cases/
191_0068_c-4691_dte-enbridge_complaint.pdf.
(Dec. 13, 2019).
25 See Lina M. Khan, Chair, Fed. Trade Comm’n,
Joined by Rebecca Kelly Slaughter and Alvaro M.
Bedoya, Comm’rs, Fed. Trade Comm’n, Statement
regarding In the Matter of ARKO Corp./Express
Stop, https://www.ftc.gov/system/files/ftc_gov/pdf/
2110187GPMExpressKhanStatement.pdf (June 10,
2022) (distinguishing non-compete clauses in labor
contracts and effects on workers from non-compete
clause in merger agreement where both parties
remain in market).
unfair method of competition.26 The
first consent involves security guard
services, and the other two involve the
manufacturing of glass containers.
These consents undoubtedly were
designed to support assertions that the
FTC now has experience with non-
compete agreements in employee
contracts. But even a cursory read of the
complaints reveals the diaphanous
nature of this ‘‘experience.’’
Remarkably, none of these cases
provides evidence showing the
anticompetitive effects of non-compete
clauses beyond the conclusory
allegations in the complaints. The
complaints in the glass container
industry assert that non-compete
provisions may prevent entry or
expansion by competitors, but contain
no allegations regarding firms that have
tried unsuccessfully to obtain personnel
with industry-specific skills and
experience.27 Regarding the effects on
employees, the complaints make no
allegations that the non-compete clauses
were enforced by respondents 28 and the
Analysis to Aid Public Comment
accompanying the consent agreements
points only to studies not tied to the
glass container industry. These cases
provide no evidence that the non-
compete provisions limited competition
for employees with industry-specific
expertise, thereby lowering wages or
impacting job quality. Similarly, in the
case against Prudential Security, Inc.,29
the complaint alleges that individual
former employees were limited in their
ability to work for other firms in the
security guard industry,30 but contain
no allegations that the firm’s non-
compete provisions had market effects
on wages or effects in a properly defined
market for security guard services.
The NPRM also asserts FTC
experience with non-compete
26 On December 28, 2022, the Commission voted
to accept for public comment three consent
agreements involving non-compete agreements. For
two of those matters, the Commission vote occurred
less than a week after the Commission received the
papers. See Ardagh Glass Group S.A., File No. 211–
0182, https://www.ftc.gov/system/files/ftc_gov/pdf/
2110182ardaghacco.pdf (Jan. 4, 2023) (Agreement
Containing Consent Order (signatures dated Dec.
21, 2022)).
27 See O–I Glass, Inc., File No. 211–0182, https://
www.ftc.gov/system/files/ftc_gov/pdf/2110182o-
iglasscomplaint.pdf (Jan. 4, 2023) (complaint ¶¶ 6,
8); Ardagh Glass Group S.A., File No. 211–0182,
https://www.ftc.gov/system/files/ftc_gov/pdf/
2110182ardaghcomplaint.pdf (Jan. 4, 2023)
(complaint ¶¶ 6, 8).
28 See Wilson, Dissenting Statement regarding In
the Matter of O–I Glass, Inc. and In the Matter of
Ardagh Glass Group S.A., supra note 4.
29 Prudential Security, Inc., File No. 221–0026,
https://www.ftc.gov/system/files/ftc_gov/pdf/
2210026prudentialsecuritycomplaint.pdf (Dec. 28,
2022) (consent agreement accepted for public
comment).
30 Id. (complaint at ¶¶ 23, 25).
provisions by pointing to Commission
merger consent agreements that restrict
the use of non-compete agreements. The
complaints in those cases did not allege
harm from non-compete clauses and the
provisions in the consent agreements
were included to ensure that the buyers
of divestiture assets could obtain
employees familiar with the assets and
necessary for the success of the
divestitures at issue.
Finally, the NPRM claims
Commission experience with non-
compete agreements to support the Non-
Compete Clause Rule from a
Commission workshop in January
2020.31 But the NPRM fails to reflect the
variety of views expressed during that
workshop, including testimony that the
economic literature is ‘‘[s]till far from
reaching a scientific standard for
concluding [that non-compete
agreements] are bad for overall welfare
. . . Also [we] don’t yet fully
understand the distribution of effects on
workers . . . Welfare tradeoffs are likely
context-specific, and may be
heterogeneous.’’ 32
Indeed, the NPRM ignores that
testimony and instead focuses on
economic literature that purportedly
demonstrates that non-compete clauses
are unfair because they negatively affect
competitive conditions. But an objective
review of that literature reveals a mixed
bag. For example, the first study
described in the NPRM 33 finds that
‘‘decreasing non-compete clause
enforceability from the approximate
enforceability level of the fifth-strictest
state to that of the fifth-most-lax state
would increase workers’ earnings by 3–
4%.’’ Yet, this study also finds that
these effects vary strongly across
different groups of individuals. For
example, the authors find that
‘‘enforceability has little to no effect on
earnings for non-college educated
workers’’ and instead find that
enforceability primarily impacts college-
educated workers. Similarly, it finds
that strict non-compete clause
enforceability has very different effects
for different demographic groups: it has
little to no effect on men, and much
31 Fed. Trade Comm’n, Non-Competes in the
Workplace: Examining Antitrust and Consumer
Protection Issues, https://www.ftc.gov/news-events/
events/2020/01/non-compete-clauses-workplace-
examining-antitrust-consumer-protection-issues.
32 Kurt Lavetti, Economic Welfare Aspects of Non-
Compete Agreements, Remarks at the Fed. Trade
Comm’n Workshop on Non-Compete Clauses in the
Workplace (Jan. 9, 2020), https://www.ftc.gov/
system/files/documents/public_events/1556256/
non-compete=workshop-slides.pdf.
33 Matthew S. Johnson, Kurt Lavetti, & Michael
Lipsitz, The Labor Market Effects of Legal
Restrictions on Worker Mobility 2, https://
papers.ssrn.com/sol3/papers.cfm?abstract_
id=3455381 (2020).

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3543
larger effects on women and Black men
and women. The NPRM interprets these
differential effects as facts in favor of the
Non-Compete Clause Rule, as it would
diminish race and gender wage gaps,
but there is no corresponding discussion
of the Rule’s effect on the wage gap
based on education. An alternative
interpretation of these findings is that
the scientific literature is still muddled
as to who is helped and who is harmed
by non-compete clauses, and that it
would be better for the Commission to
tailor a rule to those settings where a
scientific consensus exists.
Similarly, the NPRM often bases its
conclusions about the effects of non-
compete clauses on limited support. For
example, the NPRM contends that
increased enforceability of non-compete
clauses increases consumer prices. Yet,
under the current record, this
conclusion is based on only one study
in healthcare markets and another study
that considers the relationship between
non-compete clauses and
concentration.34 The NPRM does not
provide a basis to conclude that findings
with respect to the market for
physicians and healthcare are
generalizable, instead acknowledging
that no comparable evidence exists for
other markets.35 Also, the study that
considers the effects of non-compete
clauses on concentration does not draw
conclusions about prices; the NPRM’s
conclusion that non-compete provisions
lead to higher prices requires
assumptions about a relationship
between concentration and prices.
Moreover, the NPRM omits studies
showing that reducing the enforceability
of non-compete restrictions leads to
higher prices for consumers. A study by
Gurun, Stoffman, and Yonker finds that
an agreement not to enforce post-
employment restrictions among
financial advisory firms that were
members of the Broker Protocol led
brokers to depart their firms, and
consumers to follow their brokers, at
high rates. The study found, however,
that clients of firms in the Broker
Protocol paid higher fees and
experienced higher levels of broker
misconduct.36 In other words,
suspending non-competes resulted in
higher prices and a decrease in the
quality of service provided. These
unintended consequences illustrate the
inevitably far-reaching and unintended
consequences that today’s NPRM will
34 NPRM Part II.B.2.a.
35 NPRM Part VII.B.2.c.
36 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).
visit upon employees, employers,
competition, and the economy.
B. The NPRM’s Treatment of Business
Justifications
The NPRM explains that ‘‘the
additional incentive to invest (in assets
like physical capital, human capital, or
customer attraction, or in the sharing of
trade secrets and confidential
commercial information) is the primary
justification for use of non-compete
clauses.’’ 37
It acknowledges that ‘‘there is
evidence that non-compete clauses
increase employee training and other
forms of investment,’’ 38 and describes
two studies demonstrating that
increased non-compete clause
enforceability increased firm-provided
training and investment.39 It also
describes studies that examine non-
compete clause use and investment.40
Despite the studies, the NPRM
concludes, ‘‘the evidence that non-
compete clauses benefit workers or
consumers is scant.’’ 41 In other words,
the NPRM treats asymmetrically the
evidence of harms (mixed evidence
given great credence) and benefits
(robust evidence given no credence).
These early examples of cherry-picking
evidence that conforms to the narrative
provide little confidence in the integrity
of the rulemaking process or the
ultimate outcome.
Implicitly, though, the NPRM credits
some business justifications for non-
compete provisions. It excludes from
the ban those non-compete clauses
associated with the sale of a business,
implicitly acknowledging that these
non-compete clauses are necessary to
37 NPRM Part II.B.2.e.
38 Id.
39 Evan Starr, Consider This: Training, Wages,
and the Enforceability of Non-Compete Clauses, 72
I.L.R. Rev. 783, 799 (2019) (moving from mean non-
compete enforceability to no non-compete clause
enforceability would decrease the number of
workers receiving training by 14.7% in occupations
that use non-compete clauses at a high rate); Jessica
Jeffers, The Impact of Restricting Labor Mobility on
Corporate Investment and Entrepreneurship 22
(2019), https://papers.ssrn.com/sol3/
papers.cfm?abstract_id=3040393 (knowledge-
intensive firms invest 32% less in capital
equipment following decreases in the enforceability
of non-compete clauses).
40 Matthew S. Johnson & Michael Lipsitz, Why
Are Low-Wage Workers Signing Noncompete
Agreements?, 57 J. Hum. Res. 689, 700 (2022)
(finding firms that use non-compete clauses in hair
salon industry train employees at 11% higher rate
and increase investment in particular customer-
attraction device by 11%); Evan P. Starr, James J.
Prescott, & Norman D. Bishara, Noncompete
Agreements in the U.S. Labor Force, 64 J.L. & Econ.
53, 53 (2021) (finding no statistically significant
impact on training and trade secrets from use of
non-compete clauses, but unable to examine other
types of investments).
41 NPRM Part IV.B.3.
protect the goodwill of the transferred
business. Also, the NPRM likely credits
business justifications when it seeks
comment on whether senior executives
should be covered by the rule.
Nonetheless, on its face, the NPRM
expressly discounts business
justifications and makes no effort to
distinguish and determine
circumstances where investment
incentives are important.
The NPRM also discounts
procompetitive business justifications
by asserting that trade secret law, non-
disclosure agreements, and other
mechanisms can be used to protect firm
investments. While the NPRM explains
that these mechanisms may protect
investments, the existing record
provides no evidence that these
mechanisms are effective substitutes for
non-compete agreements.42 The NPRM
cites no instances where these
mechanisms have been used effectively
in lieu of non-compete clauses, even
though natural experiments exist and
could be studied (e.g., when states have
changed the enforceability of non-
compete clauses). ‘‘[M]erely identifying
alternative mechanisms to solve a
potential employee investment problem
does not provide . . . guidance as to
which mechanism achieves the
objective at the lowest social cost.’’ 43
Moreover, the NPRM’s observation that
firms successfully operate in states
where non-compete clauses are not
enforceable is unpersuasive; the NPRM
offers no meaningful cross-state
comparisons and the observation does
not show that firms and competition are
equally or even more successful in those
states than in states where non-compete
clauses are permissible.
II. The Proposed Non-Compete Clause
Rule Will Trigger Numerous and Likely
Successful Legal Challenges Regarding
the Commission’s Authority To Issue the
Rule
This section describes the numerous,
and meritorious, legal challenges that
undoubtedly will be launched against
the Non-Compete Clause Rule.
Defending these challenges will entail
lengthy litigation that will consume
42 There is a limited literature regarding the
efficacy of trade secret protection and non-
disclosure agreements. See Jie Gong & I.P.L. Png,
Trade Secrets Law and Inventory Efficiency:
Empirical Evidence from U.S. Manufacturing,
https://ssrn.com/abstract=2102304 (July 8, 2012)
(investigating effects of operational know-how
information spillovers under various levels of
enforcement of trade secret law).
43 Camila Ringeling, Joshua D. Wright, et. al,
Noncompete Clauses Used in Employment
Contracts, Comment of the Global Antitrust
Institute 6 (Feb. 7, 2020), https://papers.ssrn.com/
sol3/papers.cfm?abstract_id=3534374.

3544 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
substantial staff resources. I anticipate
that the Rule will not withstand these
challenges, so the Commission majority
essentially is directing staff to embark
on a demanding and futile effort. In the
face of finite and scarce resources, this
NPRM is hardly the best use of FTC
bandwidth.
There are numerous paths for
opponents to challenge the
Commission’s authority to promulgate
the Non-Compete Clause Rule. First, I
question whether the FTC Act provides
authority for competition rulemaking.
The NPRM states that the Commission
proposes the Non-Compete Clause Rule
pursuant to Sections 5 and 6(g) of the
FTC Act. Section 6(g) of the FTC Act
authorizes the Commission to ‘‘make
rules and regulations for the purpose of
carrying out the provisions of the
subchapter’’ where Section 6(g)
otherwise provides that the Commission
may ‘‘from time to time classify
corporations.’’ 44 Section 6(g) was
believed to provide authority only for
the Commission to adopt the
Commission’s procedural rules. For
decades, consistent with the statements
in the FTC Act’s legislative history,
Commission leadership testified before
Congress that the Commission lacked
substantive competition rulemaking
authority.45
44 15 U.S.C. 46(g). Section 6 of the FTC Act
provides
§ 46. Additional powers of Commission
The Commission shall also have power . . .
(g) Classification of corporations; regulations
From time to time classify corporations and
(except as provided in section 57a(a)(2) of this title)
to make rules and regulations for the purpose of
carrying out the provisions of this subchapter.
45 See Nat’l Petroleum Ref’rs Ass’n v. FTC, 482
F.2d 672, 696 nn. 38, 39 (D.C. Cir. 1973). See also
Noah Joshua Phillips, Against Antitrust Regulation,
American Enterprise Institute Report 3, https://
www.aei.org/research-products/report/against-
antitrust-regulation/ (Oct. 13, 2022) (‘‘[T]he
Conference Committee [considering legislation that
created the Federal Trade Commission] was
between two bills, neither of which contemplated
substantive rulemaking. . . . The legislative history
does not demonstrate congressional intent to give
the FTC substantive rulemaking power: The House
considered and rejected it, the Senate never
proposed it, and neither the Conference
Committee’s report nor the final debates mentioned
it.’’); 51 Cong. Rec. 12916 (1914), reprinted in The
Legislative History of the Federal Antitrust Laws
and Related Statutes 4368 (Earl W. Kintner ed.,
1982) statement of Sen. Cummins) (‘‘[I]f we were to
attempt to go further in this act and to give the
commission the authority to prescribe a code of
rules governing the conduct of the business men of
this country for the future, we would clash with the
principle that we can not confer upon the
commission in that respect legislative authority; but
we have not made any such attempt as that, and no
one proposes any attempt of that sort.’’); id. at
14932, reprinted in The Legislative History of the
Federal Antitrust Laws and Related Statutes 4732
(Earl W. Kintner ed., 1982) (statement of Rep.
Covington) (‘‘The Federal trade commission will
have no power to prescribe the methods of
Ignoring this history, the Commission
embarked on a substantive rulemaking
binge in the 1960s and 1970s.46 The vast
majority of these substantive rules
pertained to consumer protection issues.
Only one substantive rule was grounded
solely in competition; 47 that rule was
not enforced and subsequently was
withdrawn.48 Another substantive rule
was grounded in both competition and
consumer protection principles, and
prompted a federal court challenge.
There, the D.C. Circuit in 1973 held in
National Petroleum Refiners 49 that the
FTC did have the power to promulgate
substantive rules.
Two years later, however, Congress
enacted the Magnuson-Moss Act,50
which required substantive consumer
protection rules to be promulgated with
heightened procedural safeguards under
a new Section 18 of the FTC Act.
Notably, the Magnuson-Moss Act
expressly excluded rulemaking for
unfair methods of competition from
Section 18. FTC Chairman Miles
Kirkpatrick (1970–73) explained that it
was not clear whether Congress in the
Magnuson-Moss Act sought to clarify
existing rulemaking authority or to grant
substantive rulemaking authority to the
FTC for the first time.51 If the latter,
then the FTC only has substantive
consumer protection rulemaking power,
and lacks the authority to engage in
substantive competition rulemaking.
This uncertainty about the language of
the statute will be a starting point for
competition to be used in the future. In issuing
orders it will not be exercising power of a
legislative nature . . . The function of the Federal
trade commission will be to determine whether an
existing method of competition is unfair, and, it is
finds it to be unfair, to order the discontinuance of
its use. In doing this it will exercise power of a
judicial nature.’’); id. at 13317, reprinted in The
Legislative History of the Federal Antitrust Laws
and Related Statutes 4675 (Earl W. Kintner ed.,
1982) (statement of Sen Walsh) (‘‘We are not going
to give to the trade commission the general power
to regulate and prescribe rules under which the
business of this country shall in the future be
conducted; we propose simply to give it the power
to denounce as unlawful a particular practice that
is pursued by that business.’’).
46 See Timothy J. Muris & Howard Beales, III, The
Limits of Unfairness Under the Federal Trade
Commission Act 13 (1991).
47 FTC Men’s and Boy’s Tailored Clothing Rule,
16 CFR 412 (1968).
48 Notice of Rule Repeal, 59 FR 8527 (1994).
49 Nat’l Petroleum Ref’rs Ass’n v. FTC, 482 F.2d
672 (D.C. Cir. 1973).
50 Magnuson-Moss Warranty—Federal Trade
Commission Improvement Act, Public Law 93–637,
88 Stat. 2183 (1975).
51 See Miles W. Kirkpatrick, FTC Rulemaking in
Historical Perspective 48 Antitrust L.J. 1561, 1561
(1979) (‘‘One of the most important aspects of the
Magnuson-Moss Act was its granting, or
confirmation, depending upon your reading of the
law at that time, of the FTC’s rulemaking powers.’’).
challenges of the Non-Compete Clause
Rule.
Second, the Commission’s authority
for the Rule likely will be challenged
under the major questions doctrine,
which the Supreme Court recently
applied in West Virginia v. EPA.52
Under the major questions doctrine,
‘‘where a statute . . . confers authority
upon an administrative agency,’’ a court
asks ‘‘whether Congress in fact meant to
confer the power the agency has
asserted.’’ 53 The Supreme Court
explained in West Virginia v. EPA that
an agency’s exercise of statutory
authority involved a major question
where the ‘‘history and the breadth of
the authority that the agency has
asserted, and the economic and political
significance of that assertion, provide a
reason to hesitate before concluding that
Congress meant to confer such
authority.’’ 54
Challengers will ask a court to
determine whether today’s NPRM
constitutes a major question. Using
Justice Gorsuch’s concurrence as a
guide, agency action will trigger the
application of the major questions
doctrine if the agency claims, among
other things, the power to (1) resolve a
matter of great political significance, (2)
regulate a significant portion of the
American economy, or (3) intrude in an
area that is the particular domain of
state law.55 First, the regulation of non-
compete clauses is a question of
political significance; Congress has
considered and rejected bills
significantly limiting or banning non-
competes on numerous occasions,56 a
strong indication that the Commission is
trying to ‘‘work around’’ the legislative
process to resolve a question of political
significance.57 Second, the Rule
proposes to regulate a significant
portion of the American economy
through a ban on non-competes.
According to the NPRM, the
‘‘Commission estimates that
approximately one in five American
workers—or approximately 30 million
workers—is bound by a non-compete
clause.58 Thus, the Non-Compete Clause
Rule indisputably will negate millions
of private contractual agreements and
impact employer/employee
relationships in a wide variety of
52 West Virginia v. EPA, 142 S. Ct. 2587 (2022).
53 Id. at 2608.
54 Id.
55 Id. at 2600–01 (Gorsuch, J. concurring).
56 Russell Beck, A Brief History of Noncompete
Regulation, Fair Competition Law (Oct. 11, 2021),
https://faircompetitionlaw.com/2021/10/11/a-brief-
history-of-noncompete-regulation/.
57 West Virginia v. EPA, 142 S.Ct. at 2600
(Gorsuch, J. concurring).
58 NPRM Part II.B.1.a.

Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules 	3545
industries across the United States.
Third, regulation of non-compete
agreements has been the particular
domain of state law. As the NPRM
explains, 47 states permit non-competes
in some capacity, while three states
have chosen to prohibit them entirely,
and state legislatures have been active
in this area recently.59
If a court were to conclude that the
Non-Compete Clause Rule is a major
question, the FTC would be required to
identify clear Congressional
authorization to impose a regulation
banning non-compete clauses. Yet, as
discussed above, that clear
authorization is unavailable. The
language in Section 6(b) is far from
clear, and largely discusses the
Commission’s classification of
corporations. I do not believe that
Congress gave the FTC authority to
enact substantive rules related to any
provision of the FTC Act using this
‘‘oblique’’ and unclear language. In
addition, the decision by Congress to
omit unfair methods of competition
rulemaking in the Magnuson-Moss Act,
which immediately followed the
decision in National Petroleum
Refiners, is additional evidence that
Congress has not clearly authorized the
FTC to make competition rules that may
have significant political or economic
consequences. Moreover, Congress did
not remove the known ambiguity when
it enacted the FTC Improvements Act of
1980.60
Third, the authority for the Non-
Compete Clause Rule may be challenged
under the non-delegation doctrine. The
doctrine is based on the principle that
Congress cannot delegate its legislative
power to another branch of government,
including independent agencies.61
59 Id. Part II.C.1.
60 See H.R. Rep. No. 96–917, 96th Cong., 2d sess.
29–30 (1980), reprinted in The Legislative History
of the Federal Antitrust Laws and Related Statutes
5862 (Earl W. Kintner ed., 1982) (conference report
on FTC Improvements Act of 1980 explaining that
when adopting a restriction on standards and
certification rulemaking brought as an unfair or
deceptive act or practice, conferees were not taking
a position on the Commission’s authority to issue
a trade regulation rule defining ‘unfair methods of
competition’ pursuant to section 6(g). ‘‘The
substitute leaves unaffected whatever authority the
Commission might have under any other provision
of the FTC Act to issue rules with respect to ‘unfair
methods of competition.’ ’’).
61 Five Supreme Court justices have expressed
interest in reconsidering the Court’s prior thinking
on the doctrine, which increases the risk that a
challenge may be successful. See Gundy v. United
States, 139 S. Ct. 2116, 2131 (2019) (Alito, J.
concurring) (stating with respect to the
nondelegation doctrine that ‘‘[i]f a majority of this
Court were willing to reconsider the approach we
have taken for the past 84 years, I would support
that effort’’); id. at 2131 (Gorsuch, J., dissenting,
joined by Chief Justice Roberts and Justice Thomas)
(expressing desire to ‘‘revisit’’ the Court’s approach
Since the 1920s, the Supreme Court
has found that Congress has not made
an improper delegation of legislative
power so long as Congress has set out
‘‘an intelligible principle to which the
person or body authorized to fix [rules]
is directed to conform.’’ 62 Applying this
principle in Schechter Poultry,63 the
Supreme Court approved Congressional
authorization for the FTC to prohibit
unfair methods of competition, relying
on the Commission’s administrative
enforcement proceedings where the
Commission acts as ‘‘a quasi judicial
body’’ and that ‘‘[p]rovision was made
for formal complaint, for notice and
hearing, for appropriate findings of fact
supported by adequate evidence, and for
judicial review . . .’’ 64 The Court
simultaneously found that provisions of
the National Industrial Recovery Act to
issue ‘‘codes of fair competition’’ were
improper delegations of legislative
power, distinguishing the impermissibly
broad fair competition codes from the
FTC Act’s approach to address unfair
methods of competition that are
‘‘determined in particular instances,
upon evidence, in light of particular
competitive conditions[.]’’ 65
Notably, the Commission’s proposed
ban on non-compete clauses abandons
the Commission’s procedures that led
the Supreme Court in Schechter Poultry
to find that the Commission’s
enforcement of ‘‘unfair methods of
competition’’ does not constitute an
improper delegation of legislative
power. In addition, to the extent that the
Commission’s Section 5 Policy
Statement (which provides the basis for
determining that non-compete clauses
are an unfair method of competition)
abandons the consumer welfare
standard to pursue multiple goals,
including protecting labor, the
Commission’s action more closely
resembles the National Industrial
Recovery Act codes that also sought to
implement multiple goals under the
guise of codes of fair competition.
III. Comments Are Encouraged
The NPRM invites public comment on
many issues. I strongly encourage the
submission of comments from all
interested stakeholders. After all, unlike
rulemaking for consumer protection
to the nondelegation doctrine); Paul v. United
States, 140 S. Ct. 342, 342 (2019) (statement of
Kavanaugh, J, respecting the denial of certiorari);
Amy Coney Barrett, Suspension and Delegation, 99
Cornell L. Rev. 251, 318 (2014).
62 J.W. Hampton, Jr., & Co. v. United States, 276
U.S. 394, 409 (1928).
63 A L.A. Schechter Poultry Corp. v. United
States, 295 U.S. 495 (1935).
64 Id. at 533.
65 Id.
rules under the Magnuson-Moss
process, this is likely the only
opportunity for public input before the
Commission issues a final rule. For this
reason, it is important for commenters
to address the proposed alternatives to
the near-complete ban on non-compete
provisions. To the extent that the NPRM
proposes alternatives to the current
proposed rule, if the Commission were
subsequently to adopt one of the
alternatives, which would be a logical
outgrowth of the current proposed
rulemaking,66 there would be no further
opportunity for public comment.
Moreover, the Commission believes that
if it were to adopt alternatives that
differentiate among categories of
workers, the various rule provisions
would be severable if a court were to
invalidate one provision. Consequently,
it is important for the public to address
each of the alternatives proposed in the
NPRM because the comment period on
the proposed rule is the only
opportunity for public input on those
alternatives.
In addition to the issues for which the
NPRM invites comments, I encourage
stakeholders to address the following
points:
• The NPRM references some
academic studies regarding non-
competes. What other academic
literature addresses the issues in the
NPRM, including the procompetitive
justifications for non-compete
provisions?
• The NPRM describes papers that
exploit natural experiments to estimate
the effects of enforcing non-compete
clauses. While this approach ensures
that the estimates are internally valid, it
reflects the causal effects of non-
compete agreements only in the
contexts within which they are
estimated. What should the Commission
consider to understand whether and
when these estimates are externally
valid? How can the Commission know
that the estimates calculated from the
contexts of the literature are
representative of the contexts outside of
the literature?
• The NPRM draws conclusions
based on ‘‘the weight of the literature,’’
but the literature on the effects of non-
compete agreements is limited, contains
mixed results, and is sometimes
industry-specific. Which conclusions in
the NPRM are supported by the weight
66 See Owner-Operator Indep. Drivers Ass’n v.
Fed. Motor Carrier Safety Admin., 494 F.3d 188,
210 (D.C. Cir. 2007); see also Agape Church, Inc.
v. FCC, 738 F.3d 397, 412 (2013) (holding that FCC
‘‘sunset’’ rule was a logical outgrowth when
proposed rule gave public notice that a viewability
rule was in danger of being phased out, i.e., a sunset
provision).

3546 	Federal Register / Vol. 88, No. 12 / Thursday, January 19, 2023 / Proposed Rules
of the literature? Which conclusions in
the NPRM contradict the weight of the
literature? Which conclusions in the
NPRM require additional evidence
before they can be considered
substantiated?
• Where the evidence provided in the
NPRM is limited, is the evidence
sufficient to support either the proposed
ban on non-compete clauses or the
proffered alternative approaches to the
proposed ban?
• What are the benefits and
drawbacks of the currently proposed
ban compared to the proposed
alternative rule that would find a
presumption of unlawfulness, including
the role of procompetitive justifications
in rebutting a presumption?
[FR Doc. 2023–00414 Filed 1–18–23; 8:45 am]
BILLING CODE 6750–01–P