The FTC is trying to ban Non-Competes across the US

On April 23, 2024, the Federal Trade Commission issued a final rule to ban non-competition clauses nationwide. This decision follows the initial proposal of such a rule last January, and would make it a violation of federal law for employers to subject their employees to non-competes. The rule is expected to go into effect on September 4th, but it’s already facing obstacles in court. This week, we dive into what the rule entails, the ongoing opposition against it, and how likely it is to go into effect.

What is the FTC Final Rule on Non-Competes?

The FTC is pushing forward a blanket ban on non-competes. While some states have already pushed forward their own bans on non-competes, they sometimes have exceptions based on the income level or type of profession. For all employment contracts entered into after September 4th, the FTC ban has very few exceptions, resulting in a fairly blanket ban on all future non-competes for employees.

For all existing employment contract entered into before September 4th, the FTC ban also holds for everyone except senior executives. All employers would be required to inform their employees that existing non-competes are no longer enforceable. For senior executives, defined as workers earning more than $151,164 annually and in policy-making positions, existing non-competes will remain active, but no new ones can come into effect.

How is the FTC Final Rule being challenged?

Given the popularity of noncompetes with employers, it’s not surprising that lawsuits were filed within hours of the FTC’s April decision. Ryan LLC, a tax firm from Texas, took the case to federal courts in Texas, with an initial decision made last week on July 3rd. The judge has temporarily delayed the ban for the companies involved in the case while the lawsuit is ongoing and expects a final ruling to be made on August 30th.

If the ruling is made by August 30th to block the ban, further action would have to be taken by the FTC to appeal and try to reverse the decision of the judge. If no ruling is made by September 4th, the FTC ban will take effect for the companies involved. Furthermore, the Texas judge has been clear that their delay of the ban only applies to the companies involved in the case, and is not a delay on the nationwide ban set to take place.

How likely is it for the ban to go into effect?

Unfortunately, the general legal world consensus is that the ban will not likely go into effect in its current form. This opinion was held by both supporters and opponents of the ban, as most experts expect the ban to either get struck down by the Supreme Court or a lower court and not be taken up by the Supreme Court. However, the ambition of the FTC may not be necessarily to get a full ban through on the first try, but to increase momentum against non-competes as it places the national magnifying glass on the issue.

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We’ve written a number of posts now on the developing case against non-competes, and remain cautiously optimistic on the FTC’s efforts to reduce non-competes in the workplace. While it might not be likely for September 4th to be doomsday for non-competes around the country, we do expect that day to be another step forward in the battle against restrictive clauses in employment agreements. We’ll be following the developments closely and making sure our user community is aware of the latest!

For advocacy and beyond,
The Ask Ginkgo Team