The Federal Trade Commission (FTC) moved to dismiss appeals on Sept. 5 that it had filed in response to lawsuits challenging a proposed ban on most noncompete agreements. With the dismissal, the FTC signaled it will no longer go forward with the ban, which was issued via a final rule in April 2024, when President Joe Biden was in office.
Andrew N. Ferguson, who President Donald Trump appointed to serve as FTC chairman in January, was among the commission members who dissented the ban in 2024, arguing the agency didn’t have the statutory authority to issue such a rule. In a statement regarding the decision to withdraw one of its appeals, Ferguson said the Biden-era rule’s “illegality was patently obvious.”
Though the FTC’s decision puts an end to legal back-and-forth over a ban that never took effect, Ferguson said the agency will continue to target unlawful noncompete agreements.
An ambitious policy. The rule issued in 2024 would’ve had a significant impact on employers that rely on noncompete agreements, affecting some 30 million workers, HR Brew reported last year. Noncompetes typically prevent workers from joining a competing firm for a certain period of time, and are common in industries like warehousing and medicine. In recent years, this practice drew criticism due to concerns it may limit workers’ salary potential and career mobility, as well as hamper competition.
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The rule would have banned nearly all such contracts, and invalidated those currently in effect, except for noncompetes applying to certain senior executives. The US Chamber of Commerce immediately sued to block the ban, though, and it never took effect due to ongoing legal challenges.
States take the lead. Though HR departments no longer have to prepare to comply with a federal noncompete ban, these contracts are already heavily regulated at the state level. Four states—California, North Dakota, Oklahoma, and Minnesota—fully ban noncompetes, while others restrict the circumstances when employers can use them (i.e. only in contracts with highly compensated employees).
As such, it’s likely compliance pros already have this issue on their radars. The FTC is asking the public to submit information about the “scope, prevalence, and effects” of noncompetes as part of its efforts to investigate and enforce the law against “bad actors,” Ferguson said in his statement.
Employers may have legitimate reasons for using noncompetes, such as protecting trade secrets or client relationships, but they should be clear about why they’re asking workers to enter into such an agreement, HR Brew previously reported. Should a noncompete be potentially unlawful, they can consider including other types of restrictive covenants in employment contracts to ensure such protections.