On Jan. 5, the U.S. Federal Trade Commission released the text of a soon-to-be-published proposed rule banning non-compete clauses in employment contracts that is expected to impact one in five U.S. workers—or 30 million Americans. The proposal makes it an unfair method of competition under the Federal Trade Commission Act for an employer to enter into or attempt to enter into a non-compete clause with a worker, to maintain a non-compete clause with a worker or to represent to a worker that he or she is subject to a non-compete clause. Employers would also have to rescind any existing non-competes within six months of the final rule taking effect and affirmatively communicate to current and former workers that their non-competes are no longer valid. This ban on non-competes would extend to both employees and independent contractors. The FTC’s proposal does contain an exemption for non-competes preventing an owner or partner selling a business from immediately re-entering the field.

In the proposed rule, the FTC defines a prohibited 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.” But whether a contractual provision is a non-compete clause would depend “not on what the provision is called, but how the provision functions.” The FTC says that “other types of restrictive employment covenants — such as non-disclosure agreements and client or customer non-solicitation agreements — will generally not be deemed non-competes” because they usually “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.” But the FTC proposal cautions that “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.”

Among the issues on which the proposal specifically requests comments are whether senior executives should be exempted from the rule or subject to a rebuttable presumption rather than a ban and whether low- and high-wage workers should be treated differently under the rule.

The proposal will be open for comments for 60 days after it publishes in the Federal Register.