The Federal Trade Commission (FTC) recently dismissed its two appeals in cases challenging its 2024 rule banning noncompete agreements in employment contracts. The noncompete rule was issued in April of 2023, but never took effect. It would have banned most noncompete agreements nationwide.
A 3-1 majority of the agency’s commissioners voted to dismiss the appeals. In a statement, FTC Chairman Andrew Ferguson said the ban’s “illegality was patently obvious” and “would never survive judicial review.” He added, “We can continue tilting at windmills by defending the Biden administration’s indefensible rule, or we can get down to the hard business of promoting labor competition and protecting American workers.”
The FTC has, however, also made clear that it intends to play a role in ensuring that overbroad noncompete agreements are not used.” Recently, the FTC ordered pet cremation company Gateway Services and a subsidiary to stop enforcing noncompete agreements against their 1,800 employees, which typically prohibited them from working in the pet cremation service industry anywhere in the U.S. for one year after leaving Gateway. Less than a week later, the FTC sent letters to an unspecified number of health care and medical staffing companies, strongly urging them to review their employment agreements and any restrictive noncompete clauses for nurses, physicians, and other medical professionals.
Although the FTC’s nationwide ban will not take effect, the above demonstrates the FTC’s goal of rooting out noncompete agreements it deems overbroad and unenforceable. As such, we at Warrick & Boyn recommend that employers carefully monitor the following:
State Law
Noncompete enforceability remains governed by state law. Employers should continue to monitor state-level legislative trends, as many states (such as Colorado and Washington) have recently passed their own restrictions on noncompetes.
Alternative Protections
Employers should ensure their nondisclosure and nonsolicitation agreements are narrowly tailored to protect legitimate business interests, as these remain important legal defense tools to guard against unfair competition in the absence of a federal ban.
If you have any questions or concerns regarding this or any other employment law matter, please contact Dean Leazenby at Warrick & Boyn, LLP.