FTC Announces Rule Banning Noncompete Agreements

The Chamber of Commerce said it would sue the FTC “to block this unnecessary and unlawful rule.”

April 24, 2024

Yesterday, the Federal Trade Commission (FTC) voted 3-2 to ban noncompete agreements. Those agreements can bar workers from taking positions with competitors for a period of time after they leave a job.

The 3-2 vote to ban noncompete agreements makes an exception for existing noncompetes that companies have given their senior executives, because those agreements were more likely to have been negotiated and senior executives may have received additional compensation for accepting those agreements, the statement said. The FTC says employers under the rule could not enforce other existing noncompete agreements and would not be able to enter into new noncompete agreements with senior executives in the future.

The dissenting votes, cast by commissioners Melissa Holyoke and Andrew Ferguson, argued that the FTC was overstepping the boundaries of its power. Holyoke predicted the ban would be challenged in court and eventually struck down, NPR reported.

The FTC lacks “the power to nullify tens of millions of existing contracts,” Ferguson told the Washington Post. “The administrative state cannot legislate because Congress declines to do so,” Ferguson said.

Shortly after the vote, the U.S. Chamber of Commerce said it would sue the FTC to block the rule, calling it unnecessary, unlawful and a blatant power grab.

"This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy," wrote Suzanne P. Clark, president and CEO of the U.S. Chamber, in a statement.

In January 2023, the FTC issued the proposed rule which was subject to a 90-day public comment period. The FTC received more than 26,000 comments on the proposed rule.

In April 2023, NACS; NATSO, Representing America’s Travel Plazas and Truckstops; and SIGMA: America’s Leading Fuel Marketers, released a letter the associations sent to the FTC opposing the FTC’s proposed rule banning non-compete agreements. The associations did not oppose banning noncompete agreements for many categories of lower-level employees, but took the position that employers should have the ability to enter into noncompete agreements with senior executives and those with specialized knowledge of trade secrets and key strategies.

The letter stated that the groups were concerned that the proposed rule is too broad, and that it should either be withdrawn or substantially revised.

The associations stated that they view the proposed rule as undermining rather than protecting competition, and that non-compete agreements are particularly important for small businesses that may be at risk of having key executives, employees or partners lured away by larger firms to gain proprietary information and undermine competition.

The final rule will become effective 120 days after publication in the Federal Register.