The FTC Non-Compete Ban is Blocked

On August 20, the Texas District Court Judge ruled that the FTC non-compete ban was unlawful. We’ve followed this story covering both the FTC’s efforts and the NLRB’s efforts to ban non-competes across the country. As these efforts reach their first major roadblock, we tackle what the outcomes mean, where the FTC may go from here, and what’s likely to happen in the longer term.

What does the ruling mean?

The final ruling on the case of Ryan LLC v. Federal Trade Commission means that no nationwide ban on non-competes will go into effect on September 4th. Contrary to the earlier preliminary ruling that blocked the non-compete ban only for the companies involved in the case, this final ruling applies to all companies nationwide. The court held that the FTC lacked the authority to implement a non-compete ban, and that the ban itself was arbitrary.

What happens next?

For all the companies that were making preparations to comply with the ban starting September 4th, they can pause for the time being. Furthermore, the parallel cases occurring across other states, such as Pennsylvania and Florida, will now be impacted by the newly set precedent. No nationwide ban on non-competes will occur, though local rulings on specific non-competes can continue to take place. The FTC can, and likely will, appeal the decision to the Fifth Circuit Court of Appeals. However, this process is likely to take at least a year, during which time the ban cannot be enforced.

What’s the long-term outlook on the FTC’s non-compete ban?

The legal community (regardless of their support for a ban on non-competes) broadly agree that it’s unlikely for the FTC’s ban to succeed in its current form. The FTC is expected to appeal the decision to the Fifth Circuit Court of Appeals, which has a reputation of being an employer-friendly court and likely to uphold the Texas District Court’s decision.

From there, should the US Supreme Court choose to take up the case, their existing track record of reducing the power of federal administrations will make it difficult for the FTC to succeed. In June 28 of this year, they overturned the decades old precedent of the Chevron Deference which had provided federal agencies with the power to interpret laws and decide how to apply them. Without this precedent, the FTC’s authority to ban non-competes is on much less stable footing.

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We strongly believe that non-competes are adverse clauses for individuals. States where they’re largely unenforceable, as well as the many countries around the world where non-competes are unlawful, have shown that companies can succeed without placing restrictive covenants on their employees. While the FTC’s efforts were unlikely to succeed from the start, we are optimistic in the visibility and momentum they are bringing to this issue, which continues to propel states to enact their own non-compete legislation. We’ll continue to keep our users posted on the latest developments!

For advocacy and beyond,
The Ask Ginkgo Team