The Federal Trade Commission’s (FTC) noncompete ban has faced intense legal scrutiny since the rule was finalized in April 2024. Before the ban went into effect, several legal challenges were filed.
A Texas court set aside the rule nationally, halting its enforcement. Now, alongside the legal challenges, there is a new administration, and President Trump has appointed a new FTC Chair. These changes represent a significant shift in the FTC’s policy goals which have major implications for the ban.
1. Remind me, what is the FTC’s noncompete ban?
In January 2023, the FTC proposed a rule to ban noncompete agreements nationwide, aiming to ban the use of noncompetes with employees and to void existing noncompetes with most employees. After the public was given the opportunity to provide comments on the proposed rule, the FTC adopted the final rule in April 2024. The rule was scheduled to go into effect on September 4, 2024.
2. What were the legal challenges to the FTC’s noncompete ban?
The noncompete ban was challenged in federal courts in Texas, Florida, and Pennsylvania.
The Pennsylvania court preliminary ruled that the ban is valid, but the case was voluntarily dismissed after the ruling.
The Florida court preliminary found that the ban is invalid and issued a preliminary injunction precluding its enforcement as applied to the plaintiff. The Florida court struck the ban based on its finding that the ban exceeded the FTC’s rule-making authority.
The Texas court also found that the ban is invalid and set aside the rule nationwide. The Texas court’s basis for invalidating the ban was that Congress did not give the FTC authority to make rules regarding noncompetes and that the FTC’s rule was arbitrary and capricious since it targeted all noncompetes rather than just the harmful ones.
The FTC appealed the Texas decision to the Fifth Circuit Court of Appeals and the Florida decision to the Eleventh Circuit Court of Appeals.
3. What is the current status of the appeals?
The appeals are currently before the Fifth and Eleventh Circuits awaiting ruling. Assuming the FTC does not abandon the appeals, it is expected that the appellate courts will issue decisions sometime well into 2025.
The FTC has an uphill battle to get these rulings reversed given the Fifth Circuit is regarded as highly conservative and given the U.S. Supreme Court’s trend towards reining in arguably overreaching action by federal agencies. Additionally, the appellate courts apply the “right for any reason” doctrine, meaning they can affirm the lower court’s ruling for any reason supported by law and the record.
In the meantime, the Texas court’s injunction prohibiting the ban nationwide remains in effect during the pendency of the Fifth Circuit appeal.
4. How does the new administration and appointment of the new FTC chair affect the noncompete ban?
On January 20, 2025, President Trump appointed Andrew N. Ferguson as Chairman of the FTC, filling the vacancy left by the resignation of former FTC Chair Lina Khan. Chair Ferguson was previously a Republican-appointed Commissioner to the FTC. When the rule was first issued, Chair Ferguson issued a dissenting statement, arguing that the ban is unlawful and unconstitutional.
Under the Biden administration, the noncompete ban was one of the FTC’s primary initiatives. With the change in leadership, the expectation is that the FTC will shift to Trump supported initiatives and will likely abandon both appeals, effectively killing the FTC ban.
5. Can someone else defend the ban if the government decides not to?
On January 13, 2025, an organization called Small Business Majority filed motions to intervene to continue the defense of the ban in both the Fifth and Eleventh Circuits based on the likelihood that the Trump administration would abandon the appeals. The FTC opposed the motions. The Fifth Circuit has denied the motion while the Eleventh Circuit has yet to rule on the motion.
6. Could Congress step in and regulate noncompetes?
Yes, Congress could step in, but it remains to be seen whether the current Congress will tackle noncompetes. On several occasions in the past, proposed legislation has been introduced in Congress, some of which had bipartisan support, that sought to rein in the use of noncompetes in different ways. These efforts generally sought to limit noncompetes in a way that was much more limited than the FTC’s approach.
7. What does all of this mean for my organization?
From a federal perspective, noncompete law continues to stand where it stood before the FTC proposed and issued the ban, i.e., unregulated. However, prior to and since the FTC issued its ban, many states have passed legislation addressing the use of noncompetes.
Under the Biden administration, federal agencies sought to attack noncompetes in various fashions. For example, the FTC brought enforcement actions against companies that were considered to be abusing noncompetes, and other agencies, like the National Labor Relations Board, scrutinized the use of noncompetes. However, as discussed above, these agencies are likely to take a different approach under the current administration.
Nevertheless, given the patchwork of state laws in this area (some of which risk attorney general enforcement or even criminal penalties for noncompliance), it is critical for businesses to work with counsel to ensure their noncompetes are reasonable, narrowly tailored, and comply with any applicable laws.
BFV continues to keep an eye on noncompete developments across the country, so please follow our blogs for the latest developments. In the interim, if you have questions regarding how your business is using noncompetes, please feel free to reach out.
Work hard at work worth doing. This is what drives Daniel Park in every aspect of his life. At Berman Fink Van Horn, Daniel demonstrates this in everything he does.
Neal Weinrich knows noncompetes and trade secrets inside and out. A shareholder at Berman Fink Van Horn, Neal counsels clients in all industries on matters involving restrictive covenants, trade secrets and other competition-related issues.
