Federal Trade Commission Ban on Noncompetes

On April 23, 2024, the Federal Trade Commission (FTC) issued a final rule to promote competition by banning noncompete agreements nationwide. The FTC stated that this ban will (a) protect the fundamental freedom of workers to change jobs, (b) increase innovation, and (c) foster new business formations. FTC Chair Lina M. Khan stated, “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from more than 8,500 new startups that would be created a year once noncompetes are banned.” The FTC believes that noncompetes are limiting the United States economy by prohibiting innovation and job growth. The FTC also believes that noncompetes are an exploitative practice imposing contractual obligations on workers that prevent them from finding and performing in new jobs. Banning noncompetes has brought many reactions, both in support of the ban and in opposition of the ban.

In January of 2023, the FTC issued its proposed rule for the ban which was followed by a 90-day period for the public to comment. During this period, the FTC’s proposed ban garnered an abundance of support from the comments. In total, the FTC received more than 26,000 comments on the rule, over 25,000 of which were in support of the ban. The FTC used the public’s feedback and, in making its final rule, stated that non-competes are an unfair method of competition in violation of Section 5 of the FTC Act.  This final rule effectively would make it illegal for employers to enter into and enforce noncompetes with workers.

The rule, as expected, was challenged, and a federal judge in Texas issued a preliminary injunction halting the enforcement of the FTC’s ban against noncompete agreements on July 3, 2024. This initial Texas court decision was limited and only prevented the FTC from enforcing the ban against noncompete agreements with respect to the particular plaintiffs in the case and the U.S. Chamber of Commerce. However, this ruling has since been expanded.

On August 20, 2024, the federal judge in Texas set aside the FTC’s ban against noncompete agreements. This ruling, unlike the ruling in July, is broad and applies nationwide.  Thus, now the FTC cannot enforce the ban as a result of the court order.  However, it is important for employers to continue to monitor the situation for further court decisions as the order by the Texas federal judge is still subject to appeal by the FTC.

If you have any questions or want assistance with noncompete agreements, please reach out to one of our attorneys at McNeelyLaw LLP by calling (317) 825-5110.

This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.