FTC Non-Compete Agreement Ban is in Jeopardy

A federal ban on employee non-compete agreements may not go into effect in September after all.

Two lawsuits scheduled to be decided in late July and the end of August may put the kibosh on the Federal Trade Commission’s (FTC) rule to eliminate most non-competes.

A federal judge granted an injunction on behalf of a Texas-based tax services company and business groups that oppose the ban. The judge in this case will issue a final ruling no later than August 30, just days before the FTC reg goes into effect.

A separate challenge brought by a tree-trimming contractor in Pennsylvania will be ruled on by July 23. Claimants in both challenges argue that the FTC exceeded its regulatory purview in issuing a “blanketing” rule on most employers (non-profits don’t have to abide by it).

The FTC estimates that one in five workers are restricted by a non-compete of one sort or another, roughly 30 million employees. Regulators say that non-competes are a direct violation of section 5 of the 1914 FTC Act.

A small handful of states, notably California, prohibit non-competes. Until the courts determine the legality of the FTC’s rule, companies should make sure to comply with what their home states say on the matter.

Supreme Court Curtails Power of FTC, Other Federal Agencies

At the end of June 2024, the U.S. Supreme Court overturned the 40-year-old Chevron deference. Federal rulemaking agencies can no longer expect leeway if they issue rules based on ambiguous or unstated language in federal laws.

The decision tips the scales in favor of business groups that want fewer and less-expansive regs, and gives courts power to stymie the regulatory state. Not everyone remembers that Republicans cheered the Chevron decision in 1984 because it upheld a rollback on air pollution rulemaking by the Reagan Environmental Protection Agency.

Now that Chevron is dead, game-changing policies like the FTC’s non-compete ban will face more of an uphill battle. We’ll keep you posted on how the Pennsylvania and Texas courts rule in coming weeks.