The Federal Trade Commission (FTC) ban on non-compete agreements won’t go into effect in early September and is doubtful to become the law of the land anytime soon.
A federal district court judge in Texas granted summary judgment for a tax services provider that sued the FTC. The judge ruled the FTC lacked statutory authority to ban non-competes and acted in a capricious manner against employers.
In two other cases challenging the FTC ban, a Florida court issued an injunction while a Pennsylvania court ruled in favor of the FTC. The Texas district court decision forces the FTC to either vacate the rule or move forward on appeal.
Non-Compete Ban: A Step Too Far?
The 5th Circuit Court of Appeals (which covers Texas) is unlikely to reverse the district court. The U.S. Supreme Court’s reversal of the Chevron doctrine suggests the FTC would face long odds due to legal precedent.
The 1914 Federal Trade Act gives the FTC power to issue “substantial” rules. But over its 110 years in existence, the FTC refrained from passing substantial regs that changed how employers did business. The ban on non-compete agreements on employees was arguably the most substantial — and controversial — rulemaking in the commission’s history.
About 20% of American workers are bound by some type of non-compete. The FTC sought to ban the practice for nearly all employees in the private sector (nonprofits are exempt from commission rulemaking). Senior-level executives earning more than $151K annually and active in company decision-making were also exempted.
Several states including California restrict non-competes to some degree. State-level bans may continue to be the only protection for restricted workers who want to leave their current employer for a new one. J.D. Vance is a fan of FTC chair Lina Khan’s efforts, but it’s not clear if either Donald Trump or Kamala Harris will keep the would-be trust-buster Khan in place in 2025.
