FTC Non-Compete Ban Compliance

In the spring, the FTC issued a final rule that bans the use of non-compete agreements nationwide, including both prospective and existing non-compete agreements. The ban requires that employers notify employees who are subject to non-compete agreements that they will not be enforcing those agreements (unless the employee is a senior executive who is exempt from the ban). Shortly after the FTC announced the final rule, the U.S. District Court for the Northern District of Texas issued a preliminary injunction to prevent the FTC from enforcing its ban on non-compete agreements, staying the anticipated September 4 effective date (see Ryan, LLC v. Chamber of Commerce). The court stated that it will issue a final decision on or before August 30, 2024.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether employers should currently be taking steps to comply with the FTC non-compete ban.

Below is a summary of the debate that ensued between the two professors.

Their Votes:





Their Reasons:

Bloink: It's very likely that we're going to see some type of nationwide restriction on the use of non-compete agreements. The use of non-compete agreements severely limits the ability of employees to choose where they will use their skills. Non-competes create an extremely unfair situation between employer and employee—where the employee is essentially forced to remain with the employer or start a career in an unrelated industry. Now that the FTC has stepped in to stop this type of unfair practice, we have to expect that we will end up with some type of ban.

Byrnes: The FTC's broad and sweeping ban on non-compete agreements is very likely to be struck down as an impermissible exercise of power. However, even before that date, it's most likely that the court will issue an injunction that applies on a nationwide basis. There’s simply no reason for employers to begin the process only to find it was a waste of time. In fact, the court should act sooner rather than later to provide clarity to impacted businesses.

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Bloink: Multiple states have already enacted similar prohibitions on the use of non-compete agreements in employment situations at the state level. Ignoring the reality and hoping for a nationwide injunction isn’t going to do anything to help employers. Even if we assume that this nationwide ban will take effect in its current form, employers should be taking steps now to review agreements and make changes to modernize their practices.

Byrnes: We're now dealing with a split in court thinking on the FTC ban, which means that it's very unlikely that the court will simply do nothing. Either we'll see the rule vacated by the end of August or we'll be dealing with a nationwide injunction--meaning there's no reason to invest the resources to begin complying with the ban now.

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Bloink: The rule is scheduled to go into effect on September 4--just a few short weeks away. Employers who don't take steps to comply will likely find themselves in a difficult situation, as it's incredibly unlikely that the FTC will grant additional time to comply--especially because employers are already on notice that the ban is about to take effect. Now is the time for employers to evaluate their agreements and form policies to ensure compliance.

Byrnes: The ban is simply so overly broad that there is no way that the courts are going to allow it to stand. Sure, it’s always a good idea for employers to review the agreements they have in place to ensure those agreements are advisable and in line with the business’ existing needs. But there’s no need for employers to panic and expect that all of their agreements will be unenforceable come September.