In April of 2024, the Federal Trade Commission (FTC) issued a final rule that banned non-competition agreements nationwide in most employment agreements. The final rule was immediately criticized and challenged in the courts. The final rule was scheduled for implementation on September 4, 2024, but has now been put on hold due to a recent decision by a federal district court. More on the original issuance of the FTC final rule can be found here.
The April 2024 final rule prohibited companies from using non-competition agreements, commonly referred to as “noncompetes” in employment agreements. These agreements limit post-employment opportunities for employees who leave a company and restrict working for competitors within parameters of geography, duration, and the type of work to be performed.
The FTC ban was highly controversial because of its sweeping nature and because the agency had not previously been involved in noncompetes. This led to many government officials and observers, regardless of their stance on noncompetes, to question the FTC’s authority to enforce such a ban. Since issuing the final rule, the FTC has been sued in many courts to challenge the ban. Several courts held that the FTC overstepped its authority and consequently, prohibited implementation of the ban in the cases they were hearing. However, none of those courts extended the prohibition to bar the noncompete rule on a national scale.
That is, until August 20, 2024, when a federal district court in Texas ruled in one of the noncompete lawsuits against the FTC. According to the court, the FTC took an unlawful agency action under the Administrative Procedures Act, ruling that the agency does not have the authority to issue substantive rules to preclude unfair methods of competition. The court also held that the FTC acted in an arbitrary and capricious manner when it issued the final rule. As a result, the district court issued a permanent injunction barring the implementation of the rule nationwide. The FTC will likely appeal the district court's decision, and the noncompete ban will be in limbo until the case works its way through the judicial system.
Going forward, businesses should consult an attorney to determine whether they can use noncompetes, and if so, remain within the parameters that are allowed under the governing law. Typically, the governing law will be laws, regulations or the common law of the state or locality where the business is based.
In this article Adriane Harrison, VP of Human Relations Consulting, PRINTING United Alliance, addresses the Federal Trade Commission ban on non-competition agreements. More information about labor and employment laws and regulations can be found at the Center for Human Resources Support or reach out to Adriane directly if you have additional questions specific to how these issues may affect your business at: aharrison@printing.org.
To become a member of the Alliance and learn more about how our subject matter experts can assist your company with services and resources such as those mentioned in this article, please contact the Alliance membership team: 888-385-3588 / membership@printing.org