FTC Drives Final Nails Into the Coffin of a Nationwide Non-Compete Ban, but Employers Still Must Tread With Caution and Counsel
For years, state courts and legislatures have taken a skeptical eye toward non-competition agreements. Judges here in Michigan and elsewhere routinely struck down overly broad and overreaching provisions, while an increasing number of jurisdictions have passed legislation or ordinances banning non-competes outright or limiting their scope and enforceability.
During the Biden administration, the federal government injected itself into what had mostly been a state and local fight over non-compete agreements. The Federal Trade Commission (FTC) issued a rule and the National Labor Relations Board (NLRB) released an opinion, both saying that nearly all existing and future non-competes were invalid and unenforceable. Those actions were immediately challenged in court. Some judges blocked the FTC’s ban from taking effect, while others sided with the agency and allowed it to move forward. The FTC subsequently appealed federal court rulings in Texas and Florida that either struck down or limited the ban.
Then came Election Day 2024. The outcome shifted the political landscape, raising new questions about whether the federal government would continue to push for a nationwide ban on non-competes or take a different approach.
Nationwide Ban Abandoned, but Challenges to Non-Competes Remain
The newly comprised FTC under the Trump administration quickly changed its tune on a nationwide non-compete ban. A series of moves this year has made it clear that the federal government, at least for the next three years, is abandoning any such blanket efforts. Specifically, the FTC moved in September to dismiss its appeals of two district court decisions that had struck down the Final Rule. Simultaneously, the commission took steps towards acceding to the vacatur of the non-compete ban.
At the same time, however, the FTC has also indicated, through recent enforcement actions and warning letters, that it will continue to pursue remedies against employers on a case-by-case basis for the unlawful use of post-employment non-competes under Section 5 of the FTC Act, which prohibits “unfair methods of competition.”
Those FTC efforts, which are nothing new, mean the battle over the validity of non-compete agreements will continue to be fought largely at the state and local levels. Once again, employers will need to tailor their non-competition agreements to comply with the patchwork of jurisprudence, laws, and regulations of the states and localities where they have employees while remaining mindful of anti-competitive overreach that could attract the FTC’s attention.
Although the nationwide non-compete ban is dead and buried, restrictions on and litigation about the enforceability of such agreements are very much alive. Now is an opportune time for employers to consult with experienced employment counsel who can review and revise any existing or contemplated non-competition provision as necessary.If you have questions about these recent FTC developments or if you need legal assistance reviewing your company’s non-competes, please contact Breanne Gilliam at Maddin Hauser.