The FTC’s Noncompete Ban: What to Know
Written by Emily Williams
In May 2024, the Federal Trade Commission announced a rule banning noncompete agreements, triggering swift legal challenges. Within hours, multiple lawsuits were filed claiming the rule exceeds the FTC’s authority.
What is the Noncompete Ban?
The FTC issued the final rule with aims to promote competition, protect workers’ freedom to change jobs, and stimulate business formation. The rule defines a “non-compete clause” as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (2) operating a business in the United States after the conclusion of the employment that includes the term or condition.” The final rule further provides that the “term or condition of employment” includes, but is not limited to, a contractual term or workplace policy, whether written or oral.
The FTC rule does not go into effect until 120 days after being admitted to the Federal Register, making the effective date September 4, 2024. In the meantime, the federal court has begun to hear arguments from both sides regarding the legality and implications of the FTC's rule.
Lawsuits Challenging the Rule
The lawsuits challenge the FTC's authority to regulate noncompete agreements, arguing that such regulation exceeds the agency's mandate and could set a precedent for broader regulatory overreach. The plaintiffs contend that noncompete agreements serve legitimate business interests, such as protecting trade secrets and investments in employee training, and that banning them could disrupt established business practices across various industries.
On the other side, proponents of banning noncompete agreements argue that such contracts stifle job mobility, depress wages, and inhibit entrepreneurship and innovation. They assert that workers should have the freedom to seek new opportunities without artificial constraints imposed by their previous employers.
On July 3, 2024, a federal court in Texas granted the U.S Chamber of Commerce’s motion for a preliminary injunction on the final rule, prohibiting the FTC from enforcing the rule against plaintiffs until the court decides on the ultimate merits of the action on or around August 2024. The U.S. Chamber of Commerce filed a motion to expand the scope of the preliminary injunction, although the court rejected the motion.
What About Existing Noncompete Agreements?
As the legal proceedings unfold, individuals with existing noncompete agreements are left in a state of uncertainty. If the FTC rule is upheld by the courts, these agreements would become unenforceable, except in cases involving senior executives earning above a specified threshold and holding significant policy-making roles.
In the interim period before the rule takes effect, affected parties—including businesses, employees, and legal experts—are closely monitoring developments. The outcome of these lawsuits will likely have far-reaching implications for employment practices, business competition, and regulatory authority in the United States.
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Ryan LLC v. FTC: Intervention in challenge to FTC Noncompete Rule banning noncompete agreements nationwide (July 2024) https://www.uschamber.com/cases/antitrust-and-competition-law/ryan-llc-v.-ftc
FTC Non-Compete Clause Final Rule https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete-rule.pdf
FTC Announces Final Eye Glass Rule Implementing Updates to Promote Competition and Expand Consumer Choice (June 27, 2024) https://www.ftc.gov/news-events/news/press-releases/2024/06/ftc-announces-final-eyeglass-rule-implementing-updates-promote-competition-expand-consumer-choice
