Federal Trade Commission Blocked from Enforcing a Ban on Noncompete Agreements

Back in April of this year (2024), the Federal Trade Commission (“FTC”) voted to adopt a ban on noncompete agreements. Noncompete agreements are agreements between an employer and an employee wherein the employee agrees to not compete with their employer after their employment ends. The employee’s promise to not compete with his or her employer typically requires the employee to not work for the employer’s competitor or in a specific market after his or her employment ends.

In support of the ban, the FTC argued that noncompete agreements are an “unfair method of competition.” The FTC Chair Ms. Lina M.Khan stated that “[n]oncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned.”

Shortly after the FTC ban, the U.S. Chamber of Commerce and other plaintiffs filed suit in Texas federal court and argued that the FTC lacks authority to issue a ban on noncompete agreements. The judge in that case agreed with the plaintiffs and issued an order preventing the FTC from enforcing the ban. In its August 20, 2024 ruling, the court stated that, “[The FTC] lacks statutory authority to promulgate the NonCompete Rule and that the Rule is arbitrary and capricious. Thus, the FTC’s promulgation of the Rule is an unlawful agency action.” In other words, the FTC ban on noncompete agreements is blocked nationwide.

Recently, on October 18, 2024, the FTC filed an appeal. This means that, although an appeal is now pending, the FTC’s ban on noncompete agreements is currently not enforceable. Employers can technically continue to enforce existing noncompete agreements against workers.