Can you have noncompetes with employees or not? For a long time, state law governed the enforceability of noncompetes and then in April 2024, the Biden administration’s Federal Trade Commission voted to ban noncompete agreements almost entirely. The rule faced immediate legal challenges, and employers were left scrambling to change agreements or abandon them entirely. Then we had a presidential election and change in administration, and now the Trump administration’s FTC has fully abandoned any efforts to support the ban. So, where does that leave the ban and what does it mean for employers wanting to use noncompete agreements?
How Did We Get Here?
Let’s back up. Back in 2024, the FTC enacted the ban to “address conduct that harms fair competition.” What exactly did the noncompete ban say? According to the FTC:
“[t]he final rule provides that it is an unfair method of competition… for persons to, among other things, enter into non-compete clauses [] with workers on or after the final rule’s effective date. With respect to existing non-competes—i.e., non-competes entered into before the effective date—the final rule adopts a different approach for senior executives than for other workers. For senior executives, existing non-competes can remain in force, while existing non-competes with other workers are not enforceable after the effective date.” FTC Noncompete Clause Rule (Final Rule)… In August of 2024, in Ryan, LLC v. Federal Trade Commission, a Texas district court set aside the ban after finding “the FTC lacks the authority to create substantive rules through this method.” The FTC then appealed the ruling to the Fifth Circuit.
Changing Attitudes Within the FTC
When the administration changed, so did FTC leadership. Last week, new FTC Chairman Andrew Ferguson announced that the FTC was dropping the Fifth Circuit appeal. He also opined that the ban “[applied] . . . prospectively and retrospectively, extinguishing thirty million existing private contracts. It preempted the laws of all fifty States, and actively displaced hundreds of existing laws across forty-six States. It redistributed nearly a half trillion dollars of wealth within the general economy. And it purported to render categorically unlawful a species of contract that has been lawful since the eighteenth century by reimagining a single clause tucked away in an ancillary provision of a century-old statute.”
For now, the enforceability of noncompetes face no significant barriers at the federal level. Because state laws on the enforceability and scope of noncompetes continue to evolve and vary widely from one state to another, keep an eye on changes at the state level, and as always, call your employment lawyer with any specific questions.