FTC Potentially Bans Majority of Noncompete Agreements

May 02, 2024

The Federal Trade Commission (FTC) voted 3-2 to ban noncompete agreements, potentially affecting about 30 million workers or 18 percent of the U.S. workforce. The ruling purports to prohibit new noncompetes and invalidate existing ones, except for certain senior executives. FTC Commissioner Rebecca Slaughter supported the ban, arguing it frees workers from being unfairly restricted. The rule is set to take effect in 120 days but faces legal challenges from pro-business groups like the U.S. Chamber of Commerce, which plans to sue, claiming the ban undermines businesses and is an overreach of the FTC’s authority. While bipartisan bills have been introduced in Congress to reform noncompete agreements, the rule faces opposition for not having explicit congressional authorization. Supporters argue that noncompete agreements limit workers’ mobility and wage potential, as well as stifling competition and entrepreneurship.

Based on the FTC’s move to ban noncompete agreements, businesses should consider the following advice:

  1. Review Current Contracts: Examine existing employment contracts and assess how the ban could impact your workforce and operations.
  2. Prepare for Transition: While legal challenges are pending, consider other options for hiring and retaining talent, to prepare for the possibility that noncompetes may be  limited or prohibited in the future.
  3. Protect Intellectual Property: Since noncompetes are generally disfavored by most courts, utilize nondisclosure and confidentiality agreements to safeguard proprietary information.
  4. Monitor Legal Developments: Stay in touch with your legal counsel regarding legal challenges and modifications to the rule, and to ensure compliance.
  5. Enhance Competitive Edge: Strengthen your value proposition to make your business a preferred employer, reducing the desire for employees to leave.
  6. Legislative Engagement: Stay engaged with legislative efforts on noncompete reform and express your business’s perspective to policymakers.
  7. Plan for Market Changes: Anticipate potential market shifts due to increased labor mobility and adapt your business strategies accordingly.

Questions about this case can be directed to Christopher Scott at (717) 237-7111 or cscott@tthlaw.com.