FTC’s Proposed Noncompete Ban in Doubt

On April 23, 2024, the United States Federal Trade Commission (“FTC”), via a 3-2 vote, issued a final rule, which, according to the FTC’s rule summary, provides a comprehensive ban on new noncompetes nationwide and bans existing noncompetes with workers other than senior executives.  The rule is scheduled to go into effect September 4, 2024.  However, a federal judge in Texas temporarily halted the implementation and enforcement of the FTC rule and stayed the September 4 start date, at least with respect to the specific plaintiffs involved in a lawsuit that challenged the FTC rule, Ryan, LLC v. Federal Trade Commission Case (No. 3:24-cv-00986).

The district court judge, Ada Brown, indicated that she intends to rule on whether the ban on the FTC rule should be applied nationwide by August 30, 2024.

In response to the ruling, FTC spokesperson Douglas Farrar said, “[t]he FTC stands by our clear authority, supported by statute and precedent, to issue this rule. We will keep fighting to free hardworking Americans from unlawful noncompetes, which reduce innovation, inhibit economic growth, trap workers, and undermine Americans’ economic liberty.”

In the FTC’s official press release announcing the rule banning noncompetes, the FTC estimated that 1 in 5 US workers are subject to a noncompete agreement.  Many commentators believe that the FTC’s proposed ban on noncompete agreements could have a big impact on the health care industry.

“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” said FTC Chair Lina M. Khan. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

Although this initial district court ruling does not provide a definitive answer, it does provide a strong indication that the FTC rule will be declared unenforceable.  At least two other lawsuits challenging the FTC’s proposed ban were also filed shortly after the FTC announced its final rule and may provide further insight.